CONSIDERATIONS 


ON  THE 


CURRENCY  AND  BANKING  SYSTEM 


OF  THE 


UNITED   STATES: 


BY  ALBERT  GALLATIN. 


CAREY  &  LEA.— CHESTNUT  STREET. 
1831. 


ADVERTISEMENT. 


ERRATA. 


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annexed,  which  could  not  be  inserted  ia  a  Review. 

New-York,  January  1st,  1831. 


CONTENTS. 


Introduction Page  5 

Precious  metals 6 

Paper  money 19 

not  convertible  into  specie 20 

convertible  at  will 28 

Banking  system  of  the  United  States 39 

Remedies — enlargement  of  metallic  currency 55 

suppression  of  small  notes 56 

proper  valuation  of  gold  coins 57 

miscellaneous  provisions 65 

Constitutional  powers  of  Congress , 71 

Stamp  duties ,  75 

Bank  of  the  United  States 76 

Objections  answered . . . , 84 

NOTES.     A.  Ratio  of  gold  to  silver. . . 93 

B.  Banks  of  Scotland ib. 

C.  Restrictions  on  private  banking 95 

STATEMENTS.     I.  Banks  in  operation,  1st  January  1830 97 

II.  Situation  of  banks  (ascertained)  January  1st  1830. .  101 

III.  Capital  of  other  Banks "          "       "  103 

IV.  Banks  which  have  failed ib. 

V.  Depreciation  of  bank  notes  during  the  suspension  of 

specie  payments. 106 

VI.  Situation  of  the  United  States  Bank,  1819  to  1829  ib. 
VII.  Distribution  of  the  nett  circulation  of  the  United 

States  Bank,  September  1830 ib. 


CONSIDERATIONS,  &c. 


THE  .framers  of  the  Constitution  of  the  United  States  were 
deeply  impressed  with  the  still  fresh  recollection  of  the  baneful 
effects  of  a  paper  money  currency,  on  the  property  and  on  the 
moral  feeling  of  the  community.  It  was  accordingly  provided  by 
our  National  Charter,  that  no  state  should  coin  money,  emit  bills 
of  credit,  make  any  thing  but  gold  and  silver  coin  a  tender  in  pay- 
ment of  debts,  or  pass  any  law  impairing  the  obligation  of  con- 
tracts ;  and  the  power  to  coin  money  and  to  regulate  the  value 
thereof,  and  of  foreign  coin,  was,  by  the  same  instrument,  vested 
exclusively  in  Congress.  As  this  body  has  no  authority  to 
make  any  thing  whatever  a  tender  in  payment  of  private  debts, 
it  necessarily  follows,  that  nothing  but  gold  and  silver  coin  can 
be  made  a  legal  tender  for  that  purpose,  and  that  Congress  can- 
not authorize  the  payment,  in  any  species  of  paper  currency,  of 
any  other  debts  but  those  due  to  the  United  States,  or  such  debts 
of  the  United  States  as  may,  by  special  contract,  be  made  paya- 
ble in  such  paper.  All  the  engagements  previously  contracted 
at  home,  by  the  United  States,  were  expressed  in  Spanish  dok 
lars ;  all  the  moneys  of  account  of  the  several  states,  were  esti- 
mated and  payable  in  that  coin;  there  might  be  some  uncertainty 
as  to  the  precise  weight  of  pure  silver  which  it  contained ;  and 
the  assays  made  at  the  time,  may  not,  for  want  of  proper  means, 
have  had  all  the  accuracy  of  which  that  process  is  susceptible. 
But  they  were  made  in  good  faith ;  and  the  Act  of  Congress  of 
the  year  1791,  which  declared  that  the  dollar  of  the  United 
States  should  contain  37  Ij  grains  of  pure  silver,  has  irrevocably 
fixed  that  quantity  as  the  equivalent  of  a  dollar  of  account,  and 
as  the  permanent  standard  of  value,  according  to  which  all  con- 
tracts must  be  performed.  The  relative  legal  value  of  gold  and 
foreign  coins  to  that  standard,  may  from  time  to  time  be  varied^ 
provided  that  neither  shall  be  so  overrated,  as  to  authorize  the 
payment  of  a  debt  with  an  amount  in  such  coin  of  a  less  actual 
value,  than  that  of  the  silver  to  which  it  may  be  made  to  cor- 
respond. 

The  provisions  of  the  Constitution  were  universally  considered 
as  affording  a  complete  security  against  the  danger  of  paper 


6  BANKS  AND  CURRENCY. 

money.  The  introduction  of  the  banking  system,  met  with  a 
strenuous  opposition  on  various  grounds ;  but  it  was  not  appre- 
hended that  bank  notes,  convertible  at  will  into  specie,  and  which 
no  person  could  be  legally  compelled  to  take  in  payment,  would 
degenerate  into  pure  paper  money,  no  longer  paid  at  sight  in 
specie.  At  a  later  date,  although  occasional  bankruptcies  had 
taken  place,  and  might  again  be  anticipated,  there  was  no  ap- 
prehension of  a  general  failure  of  the  banks  in  three-fourths  of 
the  states.  Still  less  was  it  expected,  and  it  was  the  catastrophe 
of  the  year  1814  which  first  disclosed  not  only  the  insecurity  of 
the  American  banking  system,  as  then  existing,  but  also,  that 
when  a  paper  currency,  driving  away,  and  superseding  the  use 
of  gold  and  silver,  has  insinuated  itself  through  every  channel  of 
circulation,  and  become  the  only  medium  of  exchange,  every 
individual  finds  himself,  in  fact,  compelled  to  receive  such  cur- 
rency, even  when  depreciated  more  than  twenty  per  cent.,  in 
the  same  manner  as  if  it  had  been  made  a  legal  tender.  The  es- 
tablishment of  the  Bank  of  the  United  States  was  recommended 
by  the  Treasury,  and  that  Institution  was  incorporated  by  Con- 
gress, for  the  express  and  avowed  purpose  of  removing  an  evil, 
which  the  difference  in  the  rate  of  depreciation,  between  the 
paper  currencies  of  the  several  states,  and  even  those  of  different 
places  in  the  same  state,  had  rendered  altogether  intolerable. 
The  object  in  view  has  been  obtained.  The  resumption  of  specie 
payments,  which  the  state  banks  had  been  unwilling  or  unable 
to  effect,  took  place  immediately  after  that  of  the  United  States 
had  commenced  its  operations.  And  it  has,  for  a  number  of 
years,  supplied  the  country  with  a  currency  safer,  and,  it  must 
at  least  be  allowed,  more  uniform,  than  that  which  the  state 
banks  could  furnish.  The  question,  whether  the  charter,  which 
expires  in  a  few  years,  should  be  renewed,  has  been  brought  by 
the  President  before  Congress,  with  a  suggestion  that  a  national 
bank,  founded  upon  the  credit  and  revenues  of  the  government, 
might  be  advantageously  substituted,  to  that  now  in  existence. 
Reports  favorable  to  the  continuance  of  the  present  bank,  have 
been  made  by  committees  of  both  houses  of  Congress.  Another 
report,  on  the  relative  value  of  gold  and  silver,  and  intimately 
connected  with  the  subject  of  currency,  has  also  been  made  by 
the  Secretary  of  the  Treasury  to  the  Senate.  Availing  ourselves 
of  the  information  afforded  by  those  documents,  and  particularly 
of  the  arguments  adduced  in  Mr.  M'Duffie's  able  report,  we 
intend  to  examine  this  important  question,  principally  in  refer- 
ence to  the  currency  of  the  country,  considered  as  the  common 
standard,  by  which  the  value  of  all  the  other  commodities  is 
estimated,  and  every  contract  is  performed. 

Whatever  commodity  or  species  of  paper  may,  by  law  or 
general  consent,  be  universally  received  in  any  country,  in  ex- 
change of  every  other  commodity,  and  in  payment  of  all  debts, 


BANKS  AND  CURRENCY.  7 

is  the  circulating  medium  or  currency  of  such  country,  or  in 
other  words,  its  common  standard  of  the  value  of  all  commodities 
whatever,  and  that  which  regulates  the  performance  of  all 
contracts  not  specially  excepted.  It  is  therefore  of  primary 
importance,  that  the  commodity  or  substitute,  which  may  be 
selected  for  that  purpose,  should  be  of  a  value  as  permanent  as 
practicable,  and  the  same  in  every  part  of  the  same  country ; 
and  it  is  also  highly  desirable,  that  the  same  circulating  medium 
should  be  common  to  all  countries  connected  by  commerce. 
Gold  and  silver  are  the  only  substances,  which  have  been,  and 
continue  to  be,  the  universal  currency  of  civilized  nations.  It 
is  not  necessary  to  enumerate  the  well-known  properties  which 
rendered  them  best  fitted  for  a  general  medium  of  exchange. 
They  were  used,  not  only  as  ornaments  and  objects  of  luxury, 
but  also  for  that  particular  purpose,  from  the  earliest  times.  We 
learn  from  the  most  ancient  and  authentic  of  records,  that  Abra- 
ham was  rich  in  cattle,  in  silver,  and  in  gold ;  that  he  purchased 
a  field  for  as  much  money  as  it  is  worth,  and  in  payment  weighed 
four  hundred  shekels  of  silver,  current  (money)  with  the  mer- 
chant. And  when  we  see  that  nations,  differing  in  language, 
religion,  habits,  and  on  almost  every  subject  susceptible  of 
doubt,  have,  during  a  period  of  near  four  thousand  years,  agreed 
in  one  respect;  and  that  gold  and  silver  have,  uninterrupt- 
edly to  this  day,  continued  to  be  the  universal  currency  of  the 
commercial  and  civilized  world,  it  may  safely  be  inferred,  that 
they  have  also  been  found  superior  to  any  other  substance  in 
that  permanency  of  value,  which  is  the  most  necessary  attribute 
of  a  circulating  medium,  in  its  character  of  the  standard,  that 
regulates  the  payment  of  debts,  and  the  performance  of  con- 
tracts. 

There  is  not,  however,  in  nature,  any  perfect  or  altogether 
permanent  standard  of  value.  There  is  not  a  single  commodity, 
the  relative  value  of  which,  as  compared  to  that  of  all  other 
commodities,  is  not  subject  to  great  and  permanent  changes  as 
well  as  to  temporary  fluctuations.  But  it  will  be  found,  that 
the  nature  of  the  demand  for  precious  metals,  the  comparative 
regularity  of  the  supply,  and  especially  their  much  greater  du- 
rability and  intrinsic  value,  than  those  of  any  other  substance 
otherwise  fitted  for  a  circulating  medium,  restrain  the  fluctua- 
tions to  which  the  relative  value  is  liable,  within  far  narrower 
limits,  than  is  the  case  with  any  other  commodity  which  might 
have  been  selected  for  a  currency. 

It  is  well  known  that  the  discovery  of  America  was  followed  by 
a  great  and  permanentxhange  in  the  price  of  the  precious  metals,- 
which  reduced  it  to  one-fourth  of  their  previous  relative  value 
as  compared  to  all  other  commodities.  This  great  revolution  was 
due  to  a  simultaneous  vast  increase  of  the  supply  and  correspond- 
ing reduction  in  the  cost  of  production  of  the  metals.  The  Ame- 


8  BANKS  AND  CURRENCY 

rican  mines  of  silver  do  not  lie  nearer  the  surface  of  the  earth 
than  those  of  other  countries ;  the  ore  rarely  yields  more  silver 
than  one-fourth  per  cent,  of  its  weight;  nor  was  there  at  the  time 
any  improvement  adopted  that  tended  materially  to  lessen  the 
expense  of  extracting  the  silver  from  the  ore.*  The  superiority 
of  the  silver  mines  of  America,  appears  to  consist,  principally, 
in  the  magnitude  of  the  beds,  and  the  much  greater  quantity 
of  ore  which  can  accordingly  be  dug  out  with  the  same  labor. 
The  annual  labor  of  one  miner  at  the  mine  of  Valenciana, 
the  most  fertile  of  Mexico,  was  sufficient,  in  1803,  to  extract 
from  the  bowels  of  the  earth,  four  hundred  quintals  of  ore, 
which  produced  one  quintal  of  silver;  and  the  annual  produce 
of  the  mine  exceeded  three  millions  of  dollars  in  value,  (about 
220,000  Ibs.  troy  weight) :  whilst,  at  the  richest  mine  of  Saxony, 
the  annual  labor  of  eleven  miners  was  necessary  to  extract  the 
ore  sufficient  to  produce  a  quintal  of  silver;  and  the  annual  pro- 
duce was  less  than  ninety  thousand  dollars,  (about  6,200  Ibs. 
troy  weight).  Although  the  money  price  of  mining  labor  appears 
to  be  five  times  greater  in  Mexico  than  Saxony,  and  notwith- 
standing the  want  of  fuel  and  other  circumstances  which  in- 
crease the  current  expenses,  the  cost  of  production  was  still 
much  less  at  the  Mexican  than  at  the  Saxon  mine,  and  left  a 
considerable  rent  to  the  owner.  The  Saxon  mine,  though  prob- 
ably as  rich  as  any  that  was  in  operation  in  Europe  prior  to  the 
discovery  of  America,  could  not,  on  account  of  the  difference  in 
the  rate  of  wages,  be  worked  if  situated  in  Mexico.  It  follows, 
that  all  the  American  silver  mines  are  superior  to  it  in  fertility, 
though  in  that  respect  differing  from  each  other,  and  gradually 
decreasing  from  that  of  Valenciana,  down  to  the  poorest,  which 
probably  affords  no  rent  to  the  owner. 

The  American  mines,  or  washings  of  gold,  are  in  the  same 
manner  more  fertile,  or,  with  the  same  labor,  produce  much 
greater  quantities  of  pure  metal  than  those  of  Europe.  But  the 
difference  must  have  been  less  with  respect  to  gold  than  to  silver 
mines.  The  relative  value  of  gold  to  silver  was,  before  the 
discovery  of  America,  at  the  ratio  of  11  or  12,  and  is  now  at 
that  of  15  or  16  to  1.  If  the  depreciation  in  the  value  of  silver 
has  been  at  the  rate  of  4  to  1,  that  of  gold  has  been  only  at  the 
rate  of  about  3  to  1 ;  and  this  may  afford  some  reason  to  think, 
that,  of  the  two  metals,  gold  is  probably  the  most  permanent 
standard  of  value.  It  must  be  observed,  that,  though  wanted 
for  similar  purposes,  the  relative  value  of  gold  to  silver  does  not 
depend  on  any  supposed  similarity  or  connexion  between  the 
two  metals,  but  is  the  result  of  their  respective  prime  cost,  which 
determines  the  value  of  each  in  relation  to  that  of  all  other 
commodities. 


Humboldt's  ATe\v  Spain. 


BANKS  AND  CURRENCY.  9 

As  the  total  importation  of  precious  metals  from  America  to 
Europe  had  not,  prior  to  the  year  1596,  exceeded  a  quantity- 
equal  to  that  contained  in  eight  hundred  millions  of  dollars,  and 
the  depreciation  was  then  already  at  the  rate  of  about  3j  to  1, 
it  is  probable  that  the  total  amount  of  gold  and  silver  existing 
in  Europe  prior  to  the  discovery  of  America,  though  worth  then 
four  times  as  much,  did  not  in  quantity  exceed  that  contained 
in  three  hundred  millions  of  dollars,  money  of  the  present 
times. 

The  total  amount  of  gold  and  silver  produced  by  the  mines 
of  America,  to  the  year  1803,  inclusively,  and  remaining  there 
or  exported  to  Europe,  has  been  estimated  by  Humboldt  at 
about  five  thousand  six  hundred  millions  of  dollars;  and  the 
product  of  the  years  1804— 1830,  may  be  estimated  at  seven 
hundred  and  fifty  millions.  If  to  this  we  add  one  hundred  mil- 
lions, the  nearly  ascertained  product  to  this  time  of  the  mines 
of  Siberia,  about  four  hundred  and  fifty  millions  for  the  African 
gold  dust,  and  for  the  product  of  the  mines  of  Europe,  (which 
yielded  about  three  millions  a  year  in  the  beginning  of  this  cen- 
tury.) from  the  discovery  of  America  to  this  day,  and  three 
hundred  millions  for  the  amount  existing  in  Europe  prior  to  the 
discovery  of  America,  we  find  a  total  not  widely  differing  from 
the  fact,  of  seven  thousand  two  hundred  millions  of  dollars.  It 
is  much  more  difficult  to  ascertain  the  amount  which  now  re- 
mains in  Europe  and  Am-erica  together.  The  loss  by  friction 
and  accidents  might  be  estimated,  and  researches  made  respect- 
ing the  total  amount  which  has  been  exported  to  countries  beyond 
the  Cape  of  Good  Hope ;  but  that  which  has  been  actually  con- 
sumed in  gilding,  plated  ware,  and  other  manufactures  of  the 
same  character,  cannot  be  correctly  ascertained.  From  the  im- 
perfect data  within  our  reach,  it  may,  we  think,  be  affirmed, 
that  the  amount  still  existing  in  Europe  and  America  certainly 
exceeds  four  thousand,  and  most  probably  falls  short  of  five 
thousand  millions  of  dollars.  Of  the  medium,  or  four  thousand 
five  hundred  millions,  which  we  have  assumed,  it  appears  that 
from  J  to  f  is  used  as  currency,  and  that  the  residue  consists  of 
plate,  jewels,  and  other  manufactured  articles.  It  is  known, 
that  of  the  gross  amount  of  seven  thousand  two  hundred  mil- 
lions of  dollars,  about  1800  millions  en*  Jth  of  the  whole  in 
value,  and  ±\th  in  weight,  consisted  of  go-Id.  Of  the  four  thousand 
five  hundred  -millions,  the  presumed  remaining  amount  in  gold 
and  silver,  the  proportion  of  gold  is  probably  greater,  on  account 
of  the  exportation  to  India  and  China  having  been  exclusively 
in  silver,  and  of  the  greater  care  in  preventing  every  possible 
waste  in  an  article  so  valuable  as  gold. 

In  order,  therefore,  to  produce  a  revolution  in  the  price  of 
gold  and  silver,  such  as  was  caused  by  that  event,  mines  must 

be  discovered,  which,  in  thirty  or  forty  years,  should  produce, 

R 


10  BANKS  AND  CURRENCY. 

.in  addition  to  the  supply  required  by  the  increasing  demand, 
thirteen  or  fourteen  thousand  millions  of  dollars,  or  three  times 
the  quantity  now  existing;  and  this  increased  supply  must  be 
accompanied  with  a  corresponding  reduction  in  the  cost  of  pro- 
duction. It  is  obvious,  that  the  discovery  of  one  hundred  new 
mines,  even  superior  in  magnitude,  and  equal  in  other  respects 
to  that  of  Valenciana,  would  only  cause  mines  of  inferior  fer- 
tility to  be  abandoned,  and  could  produce  no  greater  effect  on  the 
price  of  silver,  than  reducing  it  to  the  actual  cost  of  production 
at  the  mine  of  Valenciana.  The  expense  of  extracting  the  silver 
from  ore  of  a  given  quality,  once  brought  to  the  surface  of  the 
earth,  bears  too  small  a  proportion  to  the  whole  expense  of  work- 
ing a  mine,  to  render  it  possible  that  any  improvement  in  that 
process  should  cause  any  great  reduction  in  the  price  of  the  metal 
It  does  not  appear  that  such  reduction  can  be  effected,  other- 
wise than,  either  by  the  discovery  of  numerous  and  large  beds 
of  ore,  much  richer  in  silver  than  any  yet  worked,  or  by  a  great 
reduction  in  the  money  price  of  labor  in  America.  Judging 
from  analogy,  the  first  event,  at  least  to  a  sufficient  extent,  is 
altogether  improbable;  and  the  last  contingency  cannot  take 
place  but  slowly  and  gradually.  On  the  other  hand,  the  dimi- 
nution in  the  annual  supply  for  the  last  twenty  years,  having 
been  exclusively  caused  by  the  convulsions  attending  the  revo- 
lutions of  the  new  American  states,  is  but  temporary ;  and  the 
successive  numerous  discoveries  of  new  mines,  during  the  seven- 
teenth and  eighteenth  centuries,  render  it  highly  probable,  that, 
after  order  and  security  shall  have  been  restored  in  those  states, 
a  similar  progress  will  take  place,  and  continue,  as  heretofore, 
to  produce  an  increasing  annual  supply,  corresponding  with  the 
increasing  demand.  This  demand,  also,  being  always  propor- 
tionate to  the  wealth  and  prosperity  of  the  civilized  world,  can 
increase  but  gradually.  It  is,  therefore,  highly  improbable,  that 
any  new  revolution  should  again  occur,  producing  effects  in  any 
degree  similar  to  those  which  followed  the  discovery  of  Ame- 
rica, or  that  there  should  be  any  other  permanent  alteration 
in  the  price  of  the  precious  metals,  but  such  slow  and  gradual 
changes  as  cannot  substantially  affect  the  due  performance  of 
the  great  mass  of  ordinary  contracts.  Before  we  examine  the 
temporary  fluctuations  in  price,  to  which  both  gold  and  silver 
are  liable,  it  is  necessary  to  inquire  into  the  nature  of  the  de- 
mand for  those  metals. 

Mines  being,  like  tillable  land,  private  property,  and  of  dif- 
ferent fertility,  the  rent  of  either,  as  well  as  the  intrinsic  value 
of  their  respective  produce,  are  regulated  by  analogous  laws. 
But  there  is  an  essential  difference  between  the  demand  for 
corn  and  that  for  the  precious  metals.  That  for  corn,  or  the 
ordinary  article  of  food,  is  for  an  amount  in  quantity,  without 
much  regard  to  value.  That  for  gold  and  silver  is  for  an  amount 


BANKS  AND  CURRENCY.  11 

in  value  and  not  in  quantity.  More  food  is  consumed  and  may- 
be wasted  in  plentiful  years,  than  in  those  of  scarcity.  But  there 
is  always  a  certain  quantity  of  corn,  or  other  usual  article  of 
food,  determined  by  population,  and  which  must  necessarily  be 
supplied  at  any  price,  without  any  other  limits  than  actual  de- 
ficiency in  the  supply,  or  absolute  inability  to  pay  the  market 
price ;  and  in  either  case  a  portion  of  the  suffering  population 
must  perish.  In  a  country  requiring  annually  at  least  fifty  mil- 
lions bushels,  or  any  other  quantity  of  corn,  for  the  necessary 
subsistence  of  its  inhabitants,  there  is  a  most  imperative  demand 
for  that  amount,  or  a  substitute  for  it ;  and  this  must  be  satis- 
fied, if  the  amount  can  be  procured  at  all,  and  at  any  price, 
provided  the  country  can  by  any  means  pay  for  it.  The  demand 
for  corn  is  therefore  for  a  certain  quantity  regulated  by  the 
population,  and  not  for  a  certain  value  proportionate  to  the  in- 
come, capital,  or  wealth  of  the  country. 

But  the  demand  for  gold  and  silver  is,  either  for  plate,  jewels, 
and  other  manufactured  articles,  such  as  plated  ware,  gilding, 
&.c. ;  in  which  those  metals  are  used,  or  for  currency.  It  is  evi- 
dent, that  all,  or  nearly  all  those  objects  of  demand  being,  with 
the  exception  of  currency,  articles  of  luxury,  the  effective  de- 
mand for  them,  including  both  the  wish  to  possess  and  the  means 
to  pay,  must  be  proportionate  to  wealth,  and  therefore  for  a  cer- 
tain amount  in  value  and  not  in  quantity.  No  individual  can  lay 
out  more  than  a  certain  portion  of  his  income  or  capital  in  plate 
and  jewels.  If  the  price  of  the  precious  metals  is  reduced  to 
one  fourth  of  what  it  previously  was,  as  happened  during  the 
latter  end  of  the  sixteenth  century,  he  will  be  able,  with  the 
same  income,  to  obtain  four  times  the  quantity  of  plate  and  gold 
ornaments  which  he  formerly  possessed,  because  their  value  re- 
mains the  same.  But  the  increased  cheapness  will  in  a  very 
inconsiderable  degree,  if  at  all,  have  a  tendency  to  increase  the 
amount  in  value  of  gold  and  silver  articles  which  will  be  used. 
An  individual  may  be  induced  by  such  great  reduction  in  the 
price  of  silver,  to  substitute  silver  spoons  or  forks  to  those  made 
of  inferior  metal ;  but  so  long  as  silver  spoons  or  forks  are  dearer 
than  those  of  any  other  metal,  he  cannot,  his  income  remaining 
the  same,  indulge  his  wish  without  retrenching  his  expenses  in 
some  other  respects,  and  without  depriving  himself  of  some  other 
comforts.  What  is  true  of  every  individual  in  every  country,  is 
equally  so  of  the  aggregate  of  individuals,  or  of  every  country. 
The  demand  for  an  increased  value  of  plate,  jewels,  and  other 
articles  manufactured,  in  whole  or  in  part,  of  gold  or  silver, 
with  the  exception  perhaps  of  a  few  articles  in  general  use 
amongst  all  classes,  will  everywhere  be  nearly  in  proportion  to 
the  wealth  of  each  country  respectively.  And  what  is  nearly 
correct,  as  regards  the  demand  for  manufactures  of  gold  and 


12  BANKS  AND  CURRENCY. 

silver,  is  strictly  true  as  applied  to  the  demand  for  those  metals 
for  currency. 

As  a  silver  dollar,  or  dollar  bank  note,  passing  from  hand  to 
hand,  effects  in  a  given  time,  a  year  for  instance,  a  great  num- 
ber of  payments,  the  amount  of  currency  wanted  in  any  country 
is  always  much  less  than  the  gross  amount  of  payments  made  in 
currency  within  the  same  time.  The  amount  thus  wanted  is 
that  which  is  necessary  and  sufficient,  for  the  payment  of  all 
such  purchases  of  land,  labor  and  product  of  labor  (embracing 
every  species  of  commodities  and  capital)  as  are  paid  with  cur- 
rency. Its  value  must  always,  therefore,  bear  a  certain  propor- 
tion to  the  aggregate  value  of  the  land,  labor,  and  all  objects 
whatever,  thus  paid  for  with  currency.  That  proportion,  as 
well  as  that  which  the  value  of  the  annual  purchases  effected 
with  currency  may  bear  to  the  value  of  the  whole  amount  of 
annual  exchanges  and  purchases  of  the  country,  whether  ef- 
fected with  currency  or  by  any  other  means,  must  vary,  and 
cannot  be  precisely  ascertained.  But,  whatever  either  of  these 
two  ratios  may  be,  the  average  value  of  the  various  objects  pur- 
chased, which  are  paid  for  in  currency  within  a  given  time,  a 
year  for  instance,  will  always  require  a  certain  proportionate 
value  of  currency.  The  average  value  of  the  objects,  thus  an- 
nually paid  for,  determines  the  total  average  amount  in  value 
of  currency  which  is  requisite,  and  in  the  case  before  us,  the 
average  value  of  precious  metals  which  is  wanted  for  currency, 
and  for  which  there  is  an  actual  demand  for  that  purpose. 

Let  it  be  supposed  that  the  amount  of  currency  wanted  in  a 
country,  is  one-tenth  part  of  the  whole  amount  of  the  annual 
payments  made  there  in  currency  ;  and  that  the  currency  con- 
sisting exclusively  of  silver,  there  are  annually  in  that  country 
one  million  of  bushels  of  wheat  sold  and  paid  for  in  currency. 
It  is  clear,  that  if  the  relative  value  of  silver  to  wheat  be  such 
in  such  country,  that  one  ounce  of  silver  is  the  equivalent  and 
common  price  of  a  bushel  of  wheat,  one  hundred  thousand  ounces 
of  silver  will  be  necessary  and  sufficient  to  effect  the  payment  of 
all  the  wheat  annually  sold  and  paid  for  in  currency.  If  on  ac- 
count of  a  reduction  in  the  cost  of  its  production,  or  from  any 
other  cause,  the  value  of  silver,  as  compared  to  that  of  all  other 
commodities,  should  be  reduced  to  one-half  of  what  it  previously 
was,  the  value  of  wheat,  as  compared  with  that  of  all  other 
commodities,  silver  excepted,  remaining  the  same  as  before,  two 
hundred  thousand  ounces  of  silver  .would  be  necessary  to  effect 
the  payment  of  the  one  million  of  b\ishels  of  wheat  sold  for  cur- 
rency during  the  year.  But  although  the  quantity  of  silver  (or 
nominal  amount  of  currency)  wanted,  was  twice  as  great  as  be- 
fore, the  value  would  remain  precisely  the  same,  two  hundred 
thousand  having  become  worth  no  more  than  one  hundred  thou- 
sand ounces  had  previously  been.  If,  instead  of  this,  the  value 


BANKS  AND  CURRENCY.  13 

of  silver  had  undergone  no  change,  and  either  the  quantity  of 
wheat,  annually  sold  and  paid  for  in  currency,  had  increased  to 
two  millions  of  bushels,  its  price  remaining  the  same,  or,  the 
quantity  thus  sold  remaining  the  same,  the  value  of  wheat  as 
compared  to  all  other  commodities  had  doubled,  as  the  two  hun- 
dred thousand  ounces  of  silver,  wanted  to  effect  the  payments 
of  the  sales  of  wheat,  would  actually  be  worth  twice  as  much 
as  the  one  hundred  thousand  ounces  had  been,  the  -value  of  cur- 
rency wanted  would  be  twice  as  great  as  theretofore. 

What  is  true  of  the  proportionate  value  of  the  currency,  want- 
ed to  effect  the  payment  of  the  quantity  of  wheat  annually  paid 
for  in  currency,  to  the  value  of  that  wheat,  is  equally  true  of  the 
proportionate  value  of  the  currency,  wanted  to  effect  the  payment 
of  the  whole  amount  of  land,  labor,  and  products  of  labor,  an- 
nually paid  for  in  currency,  to  the  aggregate  value  of  all  those 
objects.  Although  the  proportion  may  vary,  according  to  the 
rapidity  of  the  circulation,  and  to  the  means  used  in  order  to 
economize  the  currency,  it  is  always  that  aggregate  value,  which 
determines  the  value  of  the  currency  wanted  in  any  country. 
Whilst  that  aggregate  value  remains  the  same,  any  great  varia- 
tion in  the  amount  in  quantity  of  the  currency  must  be  due  to 
a  change,  or  cause  a  change,  in  its  value,  as  compared  with  that 
of  all  other  commodities.  Where  gold  and  silver  are  the  only 
currency,  any  great  and  permanent  increase  in  the  quantity  of 
those  metals  used  as  currency,  (the  aggregate  value  of  the  ob- 
jects annually  paid  for  in  currency  remaining  the  same,)  must 
be  due  to  a  corresponding  reduction  in  the  cost  of  production 
of  gold  and  silver ;  which  cost,  leaving  to  the  owners  of  mines 
a  greater  or  less  rent  according  to  their  fertility,  determines  the 
value  of  those  metals  as  compared  with  that  of  all  other  com- 
modities. Where  a  paper  has  been  substituted  to  a  metallic 
currency,  any  similar  considerable  increase  in  its  amount  must 
cause  a  corresponding  depreciation  in  its  value,  if  the  aggregate 
value  of  the  objects,  annually  paid  for  in  currency,  remains  the 
same. 

The  amount  in  value  of  the  currency  wanted  to  effect 
the  necessary  payments,  though  but  a  comparatively  small  por- 
tion, is  one  of  the  most  important,  productive,  and  necessary 
portions  of  the  capital  of  a  nation.  Its  use  is  substituted  to  an 
inconvenient  barter  or  exchange  of  one  commodity  for  another; 
it  enables  every  individual  to  dispose  at  all  times,  and  with  fa- 
cility, of  the  whole  surplus  of  the  products  of  his  industry,  and 
to  purchase  with  the  proceeds  any  of  the  products  of  the  indus- 
try of  others  which  he  may  want ;  it  promotes  the  division  of 
labor,  and  vivifies  the  industry  of  the  whole  country.  But  when- 
ever the  precious  metals  used  a?  currency  exceed  in  any  country 
the  value  wanted  to  effect  the  necessary  payment?,  the  surplus 
becomes  a  dag|  and  unproductive  stock ;  and  it  will,  according- 


14  BANKS  AND  CURRENCY. 

ly,  be  either  converted  into  manufactured  articles  of  those 
metals,  or  be  exported  to  other  countries.  If  on  the  contrary 
the  currency  should  consist  of  an  irredeemable  paper,  having 
only  an  artificial  and  local  value,  and  none  whatever,  either 
in  other  countries  or  for  any  other  purpose ;  it  is  evident  that 
any  excess  in  the  nominal  value  of  such  currency,  beyond  the 
actual  value  sufficient  to  make  the  necessary  payments,  must 
cause  a  corresponding  depreciation  in  that  nominal  value.  If 
fifty-five  millions  of  ounces  of  pure  silver,  at  its  present  value 
as  compared  with  all  other  commodities,  are  sufficient  on  an 
average  to  effect  all  the  payments  made  in  the  United  States  in 
currency,  the  whole  quantity  of  a  paper  currency  substituted  to 
silver,  cannot,  on  an  average,  whatever  its  nominal  amount  may 
be,  exceed  in  value  fifty-five  millions  of  ounces  of  pure  silver, 
or  about  seventy-one  millions  of  dollars  in  our  present  coin. 
Whether  such  currency  amounted  nominally  to  seventy-one,  one 
hundred,  or  one  hundred  and  forty  millions  of  dollars,  its  value 
would  not,  on  an  average,  exceed  that  of  the  seventy-one  mil- 
lions of  silver  dollars  wanted  to  effect  the  necessary  payments ; 
and  the  paper  money  would  generally  depreciate  at  least  in  pro- 
portion to  the  excess  of  its  nominal  amount  beyond  seventy-one 
millions  of  silver  dollars.  Having  recurred  to  numbers  by  way 
of  illustration,  it  is  proper  to  observe,  that  we  do  not  mean  to 
assert  that  the  total  value  of  currency  wanted  in  any  country 
is  a  fixed  sum.  Even  when  no  alteration  has  taken  place  in 
the  industry  and  commerce  of  a  country,  the  amount  of  currency 
may  occasionally,  to  a  certain  extent,  exceed  that  which  is  actu- 
ally wanted,  without  affecting  its  price.  An  approximation  of 
the  average  amount,  which  always  fluctuates  within  certain 
limits,  is  all  we  pretend  to  give. 

It  is  obvious  that  the  aggregate  value  of  the  annual  payments 
made  in  currency,  which  regulates  the  value  of  the  currency 
wanted,  must  itself  principally  depend  on  the  aggregate  value 
of  the  land,  labor,  products  of  labor,  and  in  short  of  all  the  ob- 
jects which  are  or  may  be  annually  sold  or  exchanged.  The 
amount  of  the  value  of  currency  wanted,  or  the  demand  for 
currency  in  every  country,  depends  therefore  principally  on  its 
wealth,  but  is  modified  in  some  degree  by  the  state  of  society. 
The  wages  of  labor,  and  the  rent  of  land,  are,  in  most  countries, 
no  inconsiderable  portion  of  the  objects  which  must  be  paid  for 
in  money.  Countries  where  slave  is  generally  used  instead  of 
free  labor,  or  where,  as  in  the  United  States,  the  greater  part 
of  the  land  is  occupied  and  tilled  by  the  owners,  or,  when  rented, 
let  generally  on  shares,  will,  therefore,  with  equal  wealth,  require 
a  less  proportionate  amount  of  currency  in  value.  Less  is  also 
wanted  in  purely  agricultural  countries,  and  everywhere  by 
those  engaged  in  agriculture,  than  in  any  other  profession.  As  a 
far  greater  part  of  the  income  of  almost  every  individual  is  ex- 


BANKS  AND  CURRENCY.  15 

pended  on  articles  of  food,  than  on  the  product  of  any  other  one 
branch  of  industry,  farmers  consume  a  much  greater  part  of  the 
products  of  their  own  industry,  and  they  therefore  have  a  less 
proportionate  amount  of  those  products  to  exchange  for  the  pro- 
ducts of  the  industry  of  others,  than  any  other  profession.  Barter 
continues  also  to  be  a  principal  mode  of  exchange  in  the  country, 
at  least  in  a  great  portion  of  the  United  States,  where  the  planter 
and  farmer  obtain  from  time  to  time  their  supplies  from  the  mer- 
chant, and  pay  him  annually  with  their  crop.  It  may  be  said, 
generally,  that,  with  respect  to  the  state  of  society,  the  want  and 
demand  for  currency  increase  in  proportionate  the  density  of  the 
population,  the  consequent  multiplication  and  growth  of  towns, 
and  the  division  of  labor.  And  these  being  almost  exclusively 
the  result  of  the  increasing  growth,  prosperity,  and  wealth  of  a 
country,  it  may  be  correctly  asserted,  that  the  demand  for  cur- 
rency in  any  country  is  generally  proportionate  to  its  wealth. 

That  demand  increases  in  proportion  to  that  of  population, 
only  in  as  far  as  population  is  a  principal  element  of  wealth  ;  and 
both  will  increase  together,  nearly  in  the  same  proportion,  in  a 
country  which  in  other  respects  is  nearly  stationary.  But  the 
ratio  of  the  population  to  the  actual  amount  of  currency,  which 
always  corresponds  nearly  with  the  demand  for  it,  will  be  found 
to  differ  materially  in  various  countries,  according  to  the  pro- 
ductiveness of  labor,  to  the  accumulated  amount  of  products  of 
labor  or  capital,  and  generally  to  the  wealth  of  each  respectively. 
The  perpetual  melting  of  coins,  makes,  indeed,  the  amount  of 
coinage  alone,  and  without  many  subsidiary  investigations,  a  very 
imperfect  criterion  of  the  amount  of  gold  and  silver  coins  exist- 
ing in  any  country.  A  much  more  correct  estimate  may  be  made, 
where  paper  or  debased  coin,  neither  of  which  can  be  advantage- 
ously exported  or  used  for  any  other  purpose,  constitute  the  whole 
or  greatest  part  of  the  currency.  And  resorting  to  both  means, 
an  approximation  sufficient  for  the  purpose  may  be  obtained. 

We  learn  from  Storch,that  the  paper  money  of  Russia,  amount- 
ed, in  1812 — 1814,  to  five  hundred  and  seventy-seven  millions 
of  rubles,  and  the  copper  currency  to  about  twenty-five  millions. 
Both  being  depreciated  to  one-fourth  part  of  their  nominal  value, 
were  equivalent  to  one  hundred  and  fifty  millions  of  silver  ru- 
bles; to  which  adding  the  estimated  amount  of  twenty-five  mil- 
lions of  silver  rubles  still  in  circulation,  gives  a  total  of  one  hun- 
dred and  seventy-five  millions,  equal  to  less  than  one  hundred 
and  thirty-two  millions  of  dollars.  The  paper  circulates,  almost 
through  the  whole  empire,  from  Archangel  to  Odessa,  and  from 
the  banks  of  the  Dwina  to  the  confines  of  Asia.  Excluding  Riga, 
Courl and,  and  the  Asiatic  provinces,  the  one  hundred  and  thirty- 
two  millions  of  dollars  are  the  total  value  of  currency,  for  at 
least  thirty-five  millions  of  souls,  that  is  to  say,  at  the  rate  of 
less  than  four  dollars  a  head. 


16  BANKS  AND  CURRENCY. 

It  will  hereafter  be  shown,  that  the  amount  of  currency  of  the 
United  States,  did  not,  in  1829,  probably  exceed  seventy-three 
millions  of  dollars,  or  at  the  rate  of  about  six  dollars  a  head ;  a 
result  nearly  the  same  as  that  of  the  year  1819.  The  reasons, 
why  the  amount  is  less  than  might  have  been  inferred,  from  the 
extensive  commerce  of  the  United  States,  and  the  wealth  of  our 
large  cities,  have  already  been  briefly  indicated. 

In  France,  where  great  pains  have  been  taken  to  ascertain 
the  facts,  as  far  as  it  is  practicable,  in  a  country,  nine-tenths  at 
least  of  the  currency  of  which  consist  of  the  precious  metals,  the 
estimates  vary,  for  different  years  and  different  amounts  of  popu- 
lation, from  two  thousand  to  two  thousand  five  hundred  millions 
of  francs,  but  only  from  seventy-two  to  eighty  francs,  or  from 
thirteen  and  a  half  to  fifteen  dollars  a  head. 

The  bank  notes  of  the  Bank  of  England,  and  of  country  banks, 
amounted,  in  the  year  1811,  to  forty-four  and  a  half  millions 
sterling,  and  those  of  Scotland  to  three  millions  and  a  half,  equiva- 
lent, together,  to  about  forty-four  millions  specie,  to  which  add- 
ing about  four  millions'  worth  of  debased  silver,  gives,  on  a  popu- 
lation of  about  twelve  millions  of  souls,  about  £4  sterling,  or  19 
dollars  a  head.  In  1829,  the  amount  has  been  stated  to  be  twenty- 
two  millions  in  gold,  eight  millions  in  silver,  and  twenty-eight 
millions  in  English  bank  notes,  to  which,  adding  four  millions 
of  Scotch  notes,  gives  sixty-two  millions,  or  about  the  same 
result  in  proportion  to  the  population ;  since  this,  allowing  the 
same  rate  of  increase  since  1821,  as  between  1811  and  1821, 
must  now  amount  to  between  fifteen  and  sixteen  millions  of 
souls.  But,  including  the  population  and  the  bank  notes  of 
Ireland,  we  would  have  a  population  of  about  twenty-three 
millions,  and  a  currency  of  about  sixty-six  millions  sterling,  or, 
as  in  France,  about  fourteen  dollars  a  head. 

From  these  and  more  imperfect  data,  in  relation  to  other 
countries,  we  believe  that  the  total  amount  of  currency  in 
Europe  and  America,  may  be  estimated  at  two  thousand  to 
two  thousand  three  hundred  millions  of  dollars ;  three-fourths 
of  which  consist  of  the  precious  metals,  and  the  residue  of 
bank  notes  and  irredeemable  paper  money. 

The  amount  in  weight  or  quantity  of  gold  and  silver,  is  now 
fifteen  times  as  great  in  Europe  and  America,  as  it  was  prior 
to  the  discovery  of  the  last  country.  But  the  three  hundred 
millions  previously  existing,  were  then  worth  as  much  as  twelve 
hundred  millions  at  this  time.  The  increase,  so  far  as  it  con- 
sists only  in  amount,  and  has  been  caused  by  the  reduced  cost 
of  production,  is,  with  respect  to  currency,  of  no  importance 
whatever.  It  is  quite  immaterial  to  the  community,  whether 
one  thousand  ounces  of  silver,  will,  on  an  average,  purchase 
one  thousand  or  four  thousand  given  measures  or  weights  of 
every  other  commodity.  Had  not  that  reduction  taken  place, 


BANKS  AND  CURRENCY.  17 

four  hundred  thousand  millions  of  dollars  in  currency  would 
have  answered  the  same  purpose  as  is  now  effected  hy  sixteen 
hundred  thousand  millions,  without  any  other  difference,  than 
probably  the  use  of  coins  of  base  metal,  instead  of  our  dimes 
and  half  dimes.  But  the  increase  from  twelve  hundred  mil- 
lions, (the  present  worth  of  the  former  three  hundred  millions,) 
to  four  thousand  five  hundred  millions,  is  an  increase  in  value, 
and  indicates  a  corresponding,  and,  on  account  of  the  numer- 
ous substitute^  for  currency  introduced  by  commerce  and 
credit,  a  still  greater  proportionate  increase  of  the  wealth  and 
prosperity  of  Europe  and  America  together,  during  the  two 
last  centuries.  That  increase  of  value  has  no  otherwise  con- 
tributed to  this  increased  wealth,  than  as  far  as  it  has  added 
to  the  amount  of  exchangeable  commodities ;  and  the  same 
effect  would  have  been  produced  by  a  similar  increase  in  any 
other  commodity.  The  increased  wealth  and  prosperity  of 
Europe  and  America  are  the  cause,  and  not  the  effect,  of  the 
increased  amount  in  value  of  gold  and  silver,  which  they  now 
possess.  The  causes  of  that  great  increase  of  wealth,  are  not 
to  be  found  in  the  fertility  of  the  mines  of  America,  but  in  the 
general  progress  of  knowledge,  skill,  and  every  species  of  in- 
dustry, in  the  consequent  improvement  of  governments,  laws, 
and  habits,  in  all  that  constitutes  what  is  called  civilization. 
The  influx  of  precious  metals  follows  in  every  country,  and 
does  not  precede  the  corresponding  increase  of  wealth. 

As  the  regularity  of  the  annual  supply  of  the  precious 
metals  is  not  affected  by  the  seasons,  the  changes  in  the  amount 
of  that  supply,  had,  during  the  two  last  centuries,  been  grad- 
ual, and  hardly  sensible  from  year  to  year.  That,  which  has 
taken  place  within  the  last  twenty  years,  has  been  greater 
than  had  been  experienced,  since  the  first  great  revolution 
caused  by  the  discovery  of  America.  The  annual  supply  of 
the  mines  of  America,  Asia,  and  Europe,  had  reached'its  high- 
est point,  in  the  years  1803-1810,  and  amounted  then  to  fifty 
millions  of  dollars,  or  to  about  one  and  one-fourth  per  cent,  of 
the  whole  quantity  of  precious  metals  then  existing  in  Europe 
and  America.  The  convulsions  of  the  former  Spanish  colonies 
have,  for  the  last  twenty  years,  reduced  the  total  annual  sup- 
ply to  about  twenty-seven  millions,  or  to  about  three-fifths  per 
cent,  of  the  whole  amount  now  existing.  A  diminution  of  one- 
half  of  the  ordinary  supply  of  any  other  commodity,  the  de- 
mand remaining  the  same,  would  have  produced  a  still  greater 
proportionate  increase  in  its  price.  Continued  during  twenty 
years,  this  diminished  supply  of  the  precious  metals,  whilst  the 
demand  is  still  gradually  increasing,  cannot  but  have  affected, 
in  some  degree,  their  price ;  and  if  prolonged  much  longer,  the 
effect  would  be  visible ;  but  it  has  been  gradual,  from  year  to 
year  imperceptible,  and  affecting  in  no  sensible  manner  the 


18  BANKS  AND  CURRENCY. 

performance  of  contracts.  This  is  obviously  due  to  the 
parative  small  amount  of  the  ordinary  supply,  which  does  not 
exceed  one  hundredth  part  of  tHe  stock  on  hand,  whilst  the 
annual  supply  of  corn  and  of  most  other  natural  products  al- 
ways exceeds,  and  that  of  most  manufactured  articles  often 
equals,  the  amount  of  the  old  stock.  The  superior  durability 
and  value  of  the  precious  metals,  over  every  other  substance 
(including  even  iron,  copper,  and  other  metals)  fitted  for  a  cir- 
culating medium,  which  produce  and  preserve  the  great  accu- 
mulation of  gold  and  silver,  are  the  principal  cause  of  their 
great  superiority  over  every  other  commodity,  as  a  permanent 
standard  of  value. 

For  the  same  reasons,  any  accidental  inequality  in  the  dis- 
tribution of  the  precious  metals,  amongst  the  several  countries, 
in  proportion  to  their  respective  wants,  is  promptly  and  easily 
repaired;  and  any  extraordinary  demand  from  a  particular 
country  met  without  difficulty,  or  sensibly  affecting  the  price 
of  the  metal  required.  The  general  supply  of  stock  on  hand, 
is  always  sufficient  to  meet  such  demand,  and  the  expenses 
and  charges  of  transportation  are,  on  account  of  the  greater 
value  of  an  equal  bulk,  far  less  than  those  of  any  other  com- 
modity, hardly  ever  exceeding  in  time  of  peace  one  per  cent, 
on  the  value,  even  when  brought  from  the  most  distant  countries 
of  the  civilized  world.  During  the  four  years  which  immedi- 
ately followed  the  resumption  of  specie  payments  in  England, 
that  occurrence  caused  an  extraordinary  demand  of  more  than 
twenty  millions  sterling  in  gold,  or  about  twenty-four  millions 
of  dollars  a  year,  being  near  three  times  as  much  as  the  annual 
supply  of  that  metal ;  and  this  demand  was  met  without  any 
difficulty,  or  sensibly  enhancing  the  price  of  gold.  As  the  gold 
coins  of*France  are,  by  the  mint  regulations  of  that  country,  a 
little'SSS&ated  in  relation  to  those  of  silver,  they  always  com- 
mand a  "Small  premium,  varying  generally  from  one-fifth  to 
one-half  per  cent.  This  premium  never  exceeded  the  last 
rate  during  the  years  of  that  demand;  which  is  a  conclusive 
proof  that  it  could  not  at  most,  and  at  any  time,  have  en- 
hanced the  price  of  gold  more  than  three-tenths  per  cent.; 
since,  in  that  case,  the  advance  would  have  also  taken  place 
in  France,  whence,  in  fact^  a  considerable  portion  of  that  de- 
mand was  supplied.  This  decisive  fact  also  shows,  that  it  is 
erroneously  that  the  exportation  of  American  gold  coins,  which 
commenced  in  the  year  1821,  has  been  ascribed  to  that  extra- 
ordinary demand.  The  exportation  has  been  continued  unin- 
terruptedly, after  that  cause  had  ceased  to  operate,  and,  as 
will  be  seen  hereafter,  is  due  to  the  alteration  from  that  epoch 
in  the  rate  of  exchanges. 

But  it  is  nevertheless  true,  that  as  the  value  of  the  various 
objects  exchanged  or  sold  annually  in  a  country,  and,  what  is 


BANKS  AND  CURRENCY.  19 

more  important,  as  the  proportion  of  that  value  to  the 
amount  of  the  actual  payments  which  must  be  made  in  cur- 
rency, are  both  subject  to  variations,  the  amount  of  currency 
wanted  in  a  country  does,  exclusively  of  the  gradually  increas- 
ing demand  caused  by  an  increasing  prosperity,  vary  at  differ- 
ent times  in  the  same  country.  That  amount  ought,  therefore, 
in  prosperous  seasons,  to  exceed  that* which  is  then  necessarily 
wanted,  in  order  to  be  able  to  meet  the  greater  demand  which 
at  times  takes  place.  There  are,  in  every  country,  banks, 
bankers,  and  great  dealers,  in  whose  hands  the  currency  of  the 
country  accumulates,  to  be  thence  again  distributed  amongst 
the  members  of  the  community,  according  to  their  respective 
wants.  Obliged  to  meet  those  demands,  it  is  their  interest 
and  duty  to  keep  always  those  reservoirs  sufficiently  full.  In 
countries  where  no  artificial  substitute  has  rendered  the  task 
more  difficult,  and  where  specie  is  the  sole  or  principal  cur- 
rency, although  there  may  be  occasional  varieties  in  its  value, 
they  are  of  rare  occurrence  and  restrained  within  narrow 
limits ;  and  an  actual  want  of  specie  is  hardly  ever  known. 


The  substitution  of  a  paper  currency  to  the  precious  metals, 
does  not  appear  to  be  attended  with  any  other  substantial  ad- 
vantage than  its  cheapness ;  and  the  aetual  benefit  may  be  cal- 
culated with  tolerable  accuracy.  If  in  a  country  which  wants 
and  does  possess  a  metallic  currency  of  seventy  millions  of  dol- 
lars, a  paper  currency  to  the  same  amount  should  be  substituted, 
the  seventy  millions  in  gold  and  silver,  being  no  longer  wanted 
for  that  purpose,  will  be  exported,  and  the  returns  may  be  con-, 
verted  into  a  productive  capital,  and  add  an  equal  amount  to  the 
wealth  of  the  country.  If  the  banking  system,  founded  on  the 
principle  of  a  paper  currency  convertible  at  will  into  specie, 
should  be  adopted,  and  notes  of  a  very  low  denomination  be  ex- 
cluded, it  will  be  found,  that  the  circulation  would  consist  of  about 
sixty  millions  in  bank  notes  and  ten  millions  in  silver.*  But  in 
that  case  the  banks,  in  order  to  sustain  specie  payments,  must,  on 
an  average,  have  in  their  vaults  about  twenty  millions  in  spe- 
cie. This  is  believed  to  be  nearly  the  state  of  things  at  this 
time  in  the  United  States,  if,  according  to  common  usage, 
we  consider  bank  notes  as  constituting  the  whole  of  the  paper 
currency.  There  have  been,  therefore,  on  that  principle,  only 
forty  millions  of  dollars  saved  and  added  to  the  productive  capi- 
tal of  the  country.  This,  at  the  rate  of  5  per  cent,  a-year,  may 
be  considered  as  equal  to  an  additional  annual  national  profit  of 

*  It  has  been  lately  stated,  that  the  bank  notes  of  every  description  in  England, 
amount  to  twenty-eight  millions  sterling;  and  the  bullion  in  the  vaults  of  the  bank, 
to  thirteen  millions.  If  this  is  correct,  the  capital  saved  is  only  fifteen  millions,  and 
the  annual  profit,  derived  from  the  paper  currency,  six  hundred  thousand  pounds  sterling. 


20  BANKS  AND  CURRENCY. 

two  millions  of  dollars.  The  substitution  of  bank  notes  to  a 
metallic  currency  produces  the  same  effect,  as  an  addition  of 
two  millions  a-year,  to  the  exports  of  the  United  States,  or  as  a 
diminution  of  taxes  to  the  same  amount.  Being  inclined  to 
think  that  the  credits  on  the  books  of  the  banks,  called  deposits 
in  the  United  States,  constitute  to  all  intents  and  purposes  a 
part  of  their  currency,  we  believe  that  the  benefit  derived  from 
{he  banking  system  is  still  greater,  and  is  tantamount  to  an  an- 
nual national  saving,  or  additional  profit,  of  near  five  millions  of 
dollars.*  This  is  certainly  an  important  advantage,  provided  the 
system  is  conducted  so  as  to  afford  complete  security ;  and  it 
would  be  altogether  free  of  objection,  if  the  banks  were  only 
banks  of  deposit  and  issued  no  paper.  Barns  are  certainly  a 
very  expensive  implement  of  agriculture.  The  capital  expended 
on  those  buildings,  in  the  middle  and  northern  states,  is  more 
than  the  value  of  one  year's  crop  of  the  farms,  and  causes  there- 
fore a  deduction  of  more  than  5  per  cent,  on  the  annual  gross 
produce  of  the  earth.  To  dispense  with  barns  would  be  a  greater 
jannual  saving,  than  that  which  arises  from  the  substitution  of'  a 
paper  to  a  metallic  currency.  Some  favorable  seasons  occur, 
when  the  farmer  might  thresh  his  wheat  on  a  temporary  floor 
exposed  to  the  weather,  and  dispense  with  a  barn.  Yet,  in  our 
climate,  every  prudent  farmer  prefers  security  to  a  precarious 
advantage,  and  would  consider  it  a  most  wretched  economy,  not 
to  incur  the  expense  necessary  for  that  object.  Similar  is  the 
economy  of  that  expensive  instrument,  the  precious  metals,  if 
the  substituted  paper  currency  is  insecure.  To  unite  that  secu- 
rity, which  is  derived  from  a  uniform  and  permanent  standard 
of  value,  with  the  acknowledged  and  considerable  saving  arising 
from  the  substitution,  is  the  difficult  problem  to  be  solved,  in 
every  country  that  resorts  to  that  cheaper  species  of  circulating 
medium. 

A  paper  currency  is  either  convertible  at  will  into  specie,  or 
redeemable  at  some  future  time,  or  altogether  irredeemable.  The 
two  last  descriptions  are  excluded  by  the  Constitution  of  the 
United  States,  and  require  examination,  only  because  experience 
has  shown,  that  a  currency  of  the  first  description  may  degene- 
rate into  one  not  convertible  into  specie,  without,  on  that  ac- 
count, ceasing  to  be  the  only  currency  of  the  country.  Some 
persons  are  yet  found  who  contend  for  issues  of  paper  money 
to  an  indefinite  amount,  without  regard  to  the  fundamental 
principle,  that  the  demand  is  for  value,  and  that  it  is  impossible 

*  We  do  not  take  into  consideration  the  annual  amount  wanted  to  repair  the  loss 
occasioned  by  friction  in  gold  and  silver  coins.  This  has  been  greatly  overrated  by 
respectable  British  writers,  but  according  to  the  various  opinions  deduced  from  ac- 
tual experiments,  cannot  exceed,  taking  the  highest  computation,  and  is  probably 
less,  than  seventy  thousand  dollars  n-year,  on  a  coinage  of  forty  millions, 


BANKS  AND  CURRENCY.  21 

to  increase  the  amount  of  currency  beyond  certain  limits,  with- 
out producing  a  corresponding  depreciation  in  its  value.  A 
recurrence  to  that  principle  is  sufficient  to  dissipate  the  singu- 
lar illusion  under  which  that  opinion  is  advanced. 

We  find,  in  a  paper  laid  before  the  Senate  during  their  lasf 
session,  that,  according  to  the  increase  of  population  since  the 
year  1820,  there  ought  to  have  been,  since  that  time,  a  demand 
for  thirty-two  millions  of  acres  of  the  public  lands,  which,  at 
the  present  price  of  1 J  dollars  per  acre,  would  have  yielded 
forty  millions  of  dollars,  (or  four  millions  a-year,)  whilst  the 
annual  sales  amount  only  to  one  million,  "  the  reason  for  which 
is  want  of  money  to  purchase."  The  remedy  proposed  in  the 
sequel,  is  an  issue  of  paper  money  by  government,  the  general 
benefit  of  which,  according  to  the  writer,  would  be  stupendous. 
"Were  our  own  government  to  increase  our  circulating  medium 
only  fifty  millions  of  dollars,  income-yielding  property  would  rise 
two  thousand  millions  of  dollars." 

The  word  "  money"  is  used  as  synonymous  with  specie  and 
currency.  But  as  currency  is  the  thing  by  which  every  thing 
•else  is  valued,  the  value  of  every  species  of  property  is  expressed 
in  currency.  A  planter,  possessed  of  property,  which,  in  usual 
times,  might  be  sold  for  one  hundred  thousand  dollars,  is  accord- 
ingly said  to  be  worth  one  hundred  thousand  dollars,  though  he 
may  not,  at  any  one  time,  have  in  his  possession  one  thousand 
dollars  in  currency.  The  word  money  comes  thus  to  be  used  as 
synonymous  with  wealth ;  and,  in  that  sense  of  the  word,  \YC 
agree  with  the  respectable  writer  of  the  paper  in  question,  that 
the  reason  why  the  sales  of  the  public  lands  have  not  far  exceed- 
ed one  million  of  dollars  a-year,  has  been  the  Want  of  money  f 
that  is  to  say,  of  wealth  on  the  part  of  those  who  would  have 
wished  to  purchase.  From  the  other  writings  of  the  same  author, 
we  had  concluded,  that  he  was  in  favor  of  issues  of  paper  money 
almost  to  an  indefinite  amount.  But  it  appears  by  this  paper, 
that  he  is  perfectly  aware,  that  a  very  limited  amount  of  currency 
is  sufficient ;  since  he  avers  that  an  additional  issue  of  fifty  mil- 
lions would  produce,  on  the  value  of  the  productive  property  of 
the  country,  an  effect  forty  times  as  great  as  that  issue.  This  re- 
duces the  question  to  one  of  quantity,  and  whether  the  amount 
of  currency  supplied  by  the  banking  system  now  existing  is 
insufficient,  and  6ught  to  be  increased  by  an  issue  of  government 
paper.  As  it  is  the  interest  of  the  banks  to  issue  as  many  notes 
as  can  be  kept  in  circulation,  and  as  they  are  authorized  by  their 
charters  to  issue  more  than  three  times  the  present  amount,  it  is 
clear  that  the  obligation  to  pay  their  notes  in  specie  on  demand 
is  the  sole  reason  why  that  amount  is  not  greater.  It  is,  there- 
fore, absolutely  necessary,  in  order  to  enlarge  it,  that  the  pro- 
posed new  issue  should  consist  of  a  government  paper  money, 
not  convertible  into  specie  on  demand.  It  could  not,  accord- 


22  BANKS  AND  CURRENCY. 

ing  to  the  Constitution,  be  made  a  legal  tender  for  the  payment 
pf  debts  between  individuals,  and  might  only  be  made  receivable 
£n  payment  of  debts  due  to  the  United  States.  It  is  evident  that 
such  paper  could  not  circulate  a  single  day  in  competition  with 
jthat  of  the  banks,  which  is  received  not  only  for  that  purpose, 
but  in  payment  of  all  debts,  and  is  at  all  times  convertible  into 
specie.  The  new  paper  would  be  immediately  depreciated  in 
proportion  to  its  amount,  and  produce  no- other  effect  than  that 
of  lessening  the  revenue  of  the  United  States  in  the  same  pro- 
portion. It  would  be  much  more  simple,  if  that  was  the  object, 
to  reduce  the  rate  of  existing  taxes ;  with  respect  to  the  public 
lands,  to  reduce  the  price  at  which  they  are  now  sold.  We  be- 
lieve that  this  last  measure  would  be  equally  just  and  consistent 
with  sound  policy,  and  that  the  great  change  of  circumstances 
which  has  taken  place,  and  principally  the  superabundant  sup- 
ply of  public  lands,  compared  with  the  effective  demand  at  the 
present  price,  imperatively  require  a  reduction  of  that  price. 
Those  lands  are  the  property  of  the  people  of  the  United  States 
at  large,  and  cannot  be  given  gratuitously  either  to  particular 
individuals  or  to  particular  states.  But  they  should  not  be  kept 
out  of  market  by  persevering  in  a  price,  that  was  adapted  to  the 
time  when  it  was  fixed,  and  no  longer  accords,  either  with  the 
greatness  of  the  supply,  or  with  the  wealth  of  the  natural  pur- 
chasers, of  those  who  want  them  for  their  own  use,  and  who 
may,  if  the  expression  is  admissible,  be  considered  as  the  con- 
sumers of  that  commodity. 

But  supposing,  for  the  sake  of  argument,  that  this  additional 
issue  of  paper  by  government  should  not  experience  any  depre- 
ciation, and  should  circulate  at  the  same  rate,  as  bank  notes 
convertible  on  demand  into  specie,  not  the  slightest  advantage 
would  accrue  to  the  purchaser  of  public  lands,  or  to  any  other 
individual.  If  not  depreciated,  the  same  quantity  of  labor,  of 
wheat,  or  of  any  other  commodity,  will  be  necessary,  and  must 
be  given,  in  order  to  obtain  an  equal  quantity  either  of  that 
paper,  of  bank  notes,  or  of  specie.  If  depreciated  and  circu- 
lating, the  farmer  might  indeed  obtain  two  dollars  of  that  paper, 
instead  of  one  in  specie,  for  a  bushel  of  wheat,  and  the  laborer 
receive  one  dollar  nominal,  instead  of  half  a  dollar  in  specie, 
for  a  day's  labor.  But  what  benefit  would  arise  to  either? 
Since  the  farmer  would  be  obliged  to  pay  also  a  double  nominal 
price  for  the  labor  he  wanted,  and  the  laborer  a  similar  double 
price  for  the  farmer's  wheat,  and  since  both  would  likewise  be 
obliged  to  give  a  double  price  for  any  article  they  might  want,  . 
when  paid  with  that  paper.  This  is  so  simple  and  obvious,  that 
we  are  entirely  unable  to  understand  on  what  grounds  the  con- 
trary doctrine  can  be  sustained.  After  having  tried  to  discover 
what  was  meant  by  those  who  pretend  to  argue  in  support  of 
excessive  issues  of  paper  money,  we  have  found  nothing  but  a 


BANKS  AND  CURRENCY.  28 

repetition  of  the  erroneous  assertions,  on  which  the  famous  Law 
attempted  to  build  the  stupendous  scheme  which  bears  his  name 
and  desolated  France  in  the  year  1720.  He  asserted,  1st,  that 
gold  and  silver  were  only  the  representative  or  sign  of  wealth ; 
2d,  that  paper  might  be  that  sign  as  well  as  the  precious 
metals ;  3d,  that  by  doubling  or  trebling  the  amount  of  that 
sign,  the  national  wealth  would  be  increased  to  that  amount ; 
4th,  that  such  increase  of  the  currency  would  reduce  the  rate 
of  interest,  and  thereby  promote  industry.  It  is  hardly  neces- 
sary to  show  that  those  assertions  are  a  series  of  errors.  The 
precious  metals  are  not  merely  the  sign  or  representative  of 
wealth ;  they  have  an  intrinsic  value,  on  account  of  the  cost  of 
their  production,  and  of  the  demand  for  other  uses  than  cur- 
rency, and  are  therefore  wealth  itself.  It  is  because  they  have 
an  intrinsic  and  comparatively  stable  Value,  that  they  have 
become  the  standard  of  the  value  of  every  other  commodity, 
or,  according  to  Law's  vocabulary,  the  representative  or  sign 
of  wealth.  A  certain  quantity  of  those  signs  is  necessary  for  a 
circulating  medium ;  but  the  quantity  used  adds  nothing  more 
to  the  wealth  of  any  country,  than  *the  intrinsic  value  of  that 
quantity.  Paper  having  no  intrinsic  value,  never  can,  whatever 
its  amount  may  be,  add  any  thing  directly  to  the  national 
wealth.  Its  utility  consists  in  the  substitution  of  a  sign  of  no 
value  for  a  sign  which  has  an  intrinsic  value,  and  which  may, 
on  that  account,  be  used  advantageously  for  other  purposes 
than  that  of  a  sign.  Having  performed  that  office,  the  increase 
of  paper,  beyond  the  amount  of  the  valuable  sign  of  which  it 
takes  the  place,  neither  adds  nor  produces  any  wealth.  The 
multiplication  of  the  signs,  beyond  the  amount  in  value  wanted, 
can  have  no  other  effect  than  that  of  depreciating  their  nominal 
value,  and  has  none  on  the  rate  of  interest,  which  depends,  not 
on  the  amount  of  those  signs,  or  of  currency,  but  on  the  pro- 
portion between  the  amount  or  supply  of  capital  which  may 
be  loaned,  and  the  demand  for  that  capital.  The  result  of 
Law's  scheme  was  a  fatal  illustration  of  his  doctrines.  By  a 
series  of  arbitrary  acts  on  the  part  of  government,  and  by  con- 
necting some  splendid  and  illusory  schemes  with  the  bank,  he 
succeeded  in  putting  in  circulation  about  four  hundred  and 
twenty  millions  of  dollars  in  bank  notes,  or  more  than  twice 
the  amount  of  the  currency  then  wanted  in  France.  This 
paper  was  made  a  legal  tender,  to  the  total  exclusion  of  the 
precious  metals.  But  the  laws,  and  all  the  power  of  the  French 
government,  were  unequal  to  the  task  of  sustaining  that  excess 
of  currency.  The  price  of  every  species  of  merchandise  natu- 
rally rose  100  per  cent.  Government,  with  a  view  probably 
to  prevent  a  total  catastrophe,  reduced  by  a  decree  the  notes 
to  one  half  of  their  nominal  value.  The  bubble  burst  instan- 
taneously. The  whole  currency  of  the  country,  the  four  hun- 


24  BANKS  AND  CURRENCY. 

dred  and  fifty  millions  dollars  of  bank  notes,  could  not,  the  next 
day,  have  been  sold  for  the  value  of  the  paper  on  which  they 
were  printed.  They  were  subsequently  funded  at  the  rate  of 
eighty  for  one.  The  public  creditors,  who  had  been  paid  in 
notes,  lost  one  hundred  and  fifty  millions  of  their  capital.  Some 
speculators  in  shares  were  enriched ;  all  the  actual  stockholders 
were  ruined ;  and  the  calamity  extended  to  all  the  industrious 
and  productive  part  of  the  community.  Since  that  time  banks 
have  not  been  connected  with  such  gross  commercial  bubbles. 
But  in  England,  the  South  Sea  scheme,  and  the  joint  stock 
companies  of  the  year  1825,  were  erected  on  the  model  of  the 
Mississippi  Company  of  Law ;  and  the  Assignats  of  the  French 
revolution,  as  well  as  all  the  other  attempts  to  substitute  an 
excessive  issue  of  pure  paper  money  to  a  metallic  currency, 
have  been  but  copies  of  his  bank  notes. 

It  has  been  contended  by  distinguished  writers  of  a  very  dif- 
ferent description,  that  an  irredeemable  paper  currency,  not 
exceeding  in  its  nominal  amount  that  in  value  which  is  actually 
wanted,  might  be  altogether  substituted  to  gold  and  silver,  pro- 
vided that  government  should  always  regulate  the  issues  so  as 
never  to  exceed  or  fall  short  of  that  amount.  The  advantage 
of  such  paper,  over  notes  convertible  on  demand  in  specie, 
would  consist  in  saving  the  expense  of  the  gold  and  silver  ne- 
cessary to  pay  such  notes  at  the  will  of  the  holders,  and  in  pro- 
tecting the  currency  against  both  a  panic,  and  the  consequences 
of  any  great  drain  of  the  precious  metals  from  abroad ;  dangers 
to  both  of  which  notes  payable  in  specie  are  exposed.  It  must, 
in  the  first  place,  be  observed,  that  the  unavoidable  effect  of 
an  increased  or  diminished  value  of  the  currency,  arising  from 
contraction  or  excess  of  its  amount  beyond  certain  limits,  is  ul- 
timately to  sink  or  to  raise  the  price  of  every  other  commodity. 
But  this  change  may  not  affect  immediately  the  price  of  the 
commodities  or  of  the  labor  applied  to  objects  not  susceptible 
of  being  exported;  and  that  of  exportable  commodities  is 
often  affected  by  variations  in  the  relative  amount  of  supply 
and  demand,  which  are  altogether  foreign  to  the  state  of  the 
currency.  The  wisest  government,  with  the  purest  views, 
never  has  any  other  means  of  ascertaining,  whether  the  amount 
of  a  paper  money  is  too  limited  or  excessive,  than  the  price  of 
the  precious  metals  in  such  paper,  because  those  metals  are,  of 
all  others,  the  commodity  least  liable  to  variations  in  its  value. 
The  rate  of  exchanges  may  occasionally  be  a  more  sensitive 
test,  but  is  in  reality  a  more  circuitous  and  less  certain  mode  of 
resorting  to  the  same  standard  of  value.  Thus  government  has 
no  means  to  ascertain,  whether  its  issues  are  too  contracted  or 
too  large,  till  after  the  evil  has  actually  taken  place ;  whilst 
banks,  obliged  to  pay  their  notes  in  specie,  and  skilfully  direct- 
ed, are  constantly  employed  in  preventing  its  occurrence.  But 


BANKS  AND  CURRENCY.  25 

supposing  government  to  be  endowed  with  such  skill  as  to  be 
able  always  to  adjust  the  proper  amount  of  currency;  an  amount 
which,  if  this  is  metallic,  adjusts  itself,  and  which,  by  banks 
properly  conducted,  may  be  tolerably  well  regulated ;  there  is 
still  an  ingredient,  inherent  to  paper  not  convertible  on  demand 
in  specie,  which  no  human  skill  can  control.  This  is  public 
opinion,  with  respect  to  future  contingencies,  and  therefore 
purely  conjectural. 

It  has  been  asserted,  that  the  value  of  an  irredeemable  paper 
money  is  altogether  regulated  by  its  amount,  and  does  not,  or  at 
least  ought  not,  to  depend  on  confidence  in  the  solvency  of  the 
government  by  which  it  is  issued.  The  last  assertion  may  be 
strictly  true,  though  we  believe,  that  in  point  of  fact,  there  has 
hardly  been  any  issue  of  paper,  which  in  its  origin  was  not 
founded  on  an  explicit  or  implied  promise  to  redeem  it.  But,  if 
not  depending  on  confidence  in  the  solvency,  the  value  of  the 
paper  will  most  certainly  be  affected  by  the  public  confidence 
in  the  skill,  discretion,  and  probity  of  government,  these  being 
the  only  guarantees  against  excessive  issues,  and  experience 
having  but  too  well  proved  the  natural  disposition  of  every  gov- 
ernment which  ever  did  issue  paper,  to  resort,  whenever  pressed 
by  its  exigencies,  to  that  resource,  without  regard  to  amount 
and  consequences.  Our  principal  concern,  however,  is  with 
paper,  originally  convertible  on  demand  in  specie,  and  which 
has  degenerated  into  a  paper,  the  redemption  of  which  is  in- 
definitely postponed.  It  is  evident  that  the  value  of  such  cur- 
rency must  depend,  at  least  in  part,  on  the  probability  of  its 
being  ever  redeemed,  or  of  specie  payments  being  resumed,  and 
of  the  time  when  this  will  take  place.  And  as  there  lies  the 
danger  to  which  the  currency  of  the  United  States  is  exposed, 
we  will  illustrate  that  position  by  some  instances. 

The  paper  money  issued  by  Congress  during  the  war  of  the 
American  independence,  experienced  no  sensible  depreciation 
before  the  year  1776,  and  so  long  as  the  amount  did  not  exceed 
nine  millions  of  dollars.  A  paper  currency,  equal  in  value  to 
that  sum  in  gold  or  silver,  could  therefore  be  sustained  so  long 
as  confidence  was  preserved.  The  issues  were  gradually  in- 
creased during  the  ensuing  years,  and  in  April  1778,  amounted 
to  thirty  millions.  A  depreciation  was  the  natural  consequence; 
but  had  the  value  of  the  paper  depended  solely  on  its  amount, 
the  whole  quantity  in  circulation  would  have  still  been  equal  in 
value  to  nine  millions,  and  the  depreciation  should  not  have 
been  more  than  3^  to  1 ;  instead  of  which,  it  was  then  at  the 
rate  of  six  dollars  in  paper  for  one  silver  dollar,  and  the  whole 
amount  of  the  paper  in  circulation  was  worth  only  five  millions 
in  silver.  It  is  obvious  that  the  difference  was  due  to  lessened 
confidence.  The  capture  of  Burgoyne's  army  was  followed  by 

the  alliance  with  France,  and  her  becoming  a  party  to  the  war 

D 


26  frA  IX  KS  A  .N  D  C  L  RRfiflC  Y. 

against  England.  The  result  of  the  war  was  no  longer  consid- 
ered as  doubtful,  and  sanguine  expectations  were  formed  of  its 
speedy  termination.  The  paper  accordingly  rose  in  value ;  and 
in  June,  1778,  although  the  issues  had  been  increased  to  more 
than  forty-five  millions,  the  depreciation  was  at  the  rate  of  only 
four  to  one.  From  the  end  of  April  of  that  year,  to  the  month 
of  February,  1779,  although  the  issues  had  been  increased  from 
thirty-five  to  one  hundred  and  fifteen  millions,  the  average  value 
in  silver  of  the  whole  amount  of  paper  in  circulation  exceeded 
ten  millions,  and  it  was  at  one  time  nearly  thirteen  millions,  or 
considerably  more  than  that  which  could  be  sustained  at  the  out- 
set of  the  hostilities.  But  when  it  was  discovered,  that  the  war 
would  be  of  longer  continuance,  confidence  in  the  redemption 
of  a  paper  money,  daily  increasing  in  amount,  was  again  sud- 
denly lessened.  The  depreciation  increased  from  the  rate  of  6 
to  that  of  30  to  1  in  nine  months.  The  average  value  in  silver 
of  the  whole  amount  of  paper  in  circulation  from  April  to  Sep- 
tember 1779,  was  about  six  millions,  and  it  sunk  below  five 
during  the  end  of  the  year.  The  total  amount  of  the  paper  was 
at  that  time  two  hundred  millions;  and  although  no  further 
issues  took  place,  and  a  portion  was  absorbed  by  the  loan  offices 
and  by  taxes,  the  depreciation  still  increased,  and  was  at  the 
end  of  the  year  1780  at  the  rate  of  80  dollars  in  paper  for  1  in 
silver.  The  value  in  silver  of  the  paper  currency,  was  then 
less  than  two  millions  and  a  half  of  dollars ;  and  when  Congress, 
in  March  following,  acknowledged  the  depreciation,  and  offered 
to  exchange  the  old  for  new  paper  at  the  rate  of  40  for  one,  the 
old  sunk  in  one  day  to  nothing,  and  the  new  shared  the  same 
fate. 

The  aggregate  of  bank  notes  of  the  Bank  of  England  and 
country  banks  was  nearly  the  same  in  the  years  1810,  1813,  and 
1818,  being,  for  each  of  those  years  respectively,  about  forty- 
six  millions,  forty-six  millions  two  hundred  thousand,  and  forty- 
six  millions  seven  hundred  thousand  pounds  sterling ;  and 
the  value  in  gold  of  the  aggregate  amount  of  notes  was,  for  each 
of  those  years  respectively,  forty,  thirty-five  and  a  half,  and  for- 
ty-five and  a  half  millions.  A  result  nearly  similar,  will  be 
found  by  comparing  periods  of  years.  The  average  amount  of 
the  notes  in  circulation  was  about  forty-six  millions  for  the  years 
1810,  1811  ;  forty-five  millions  two  hundred  thousand  for  the 
years  1812  to  1816;  and  forty-four  millions  four  hundred  thou- 
sand for  the  years  1817  to  1819;  and  the  average  value  in 
gold  of  those  notes,  for  each  of  those  periods  respectively,  was 
forty-one,  thirty-six,  and  forty-three  millions.  It  is  obvious 
that  those  differences,  in  the  respective  value  in  gold  of  the 
whole  amount  of  the  currency,  did  not  depend  on  its  amount, 
but  on  the  opinion  entertained,  either  of  the  probable  increase 
or  contraction  of  the  notes,  or  of  the  resumption  of  the  specie 


BANKS  AND  CURRENCY.  27 

payments.  Had  the  depreciation  of  the  notes  depended  solely 
on  their  excess,  it  would  have  been  nearly  the  same  in  the  year* 
1810,  1813,  and  1818,  when  that  amount  was  nearly  the  same. 
Reducing  into  gold  the  value  of  the  whole  ciirrency,  no  other 
reason  can  he  assigned  but  a  greater  or  less  degree  of  confidence, 
why  a  paper  currency  worth  forty-five  and  a  half  millions  could 
be  sustained  in  1818,  whilst  no  greater  value  than  thirty-five 
and  a  half  millions  circulated  in  1813.  It  is  indeed  evident,  that 
the  confidence  in  the  resumption  of  specie  payments  must  have 
been  greater  in  1810,  and  much  greater  in  1818,  than  in  1813; 
and  that,  independent  of  the  intrinsic  value  of  the  bank  notes, 
as  regulated  by  their  amount,  they  must,  whenever  depreciated, 
acquire  some  additional  value,  according  to  the  opinion  enter- 
tained of  their  being  again  converted  into  specie,  and  of  the  prox- 
imity of  that  event. 

A  still  more  striking  instance  of  the  sudden  alterations  in 
value,  to  which  notes  not  convertible  into  specie  are  liable,  is  to 
be  found  in  that  which  took  place  in  England,  in  the  spring  of 
1815,  on  the  landing  of  Bonaparte  from  the  Island  of  Elba.  The 
bank  notes  had  gradually  risen  in  value  since  the  peace,  and 
were  not  depreciated  more  than  12-|-per  cent,  in  the  beginning 
of  March.  Towards  the  end  of  that  month,  and  within  less  than 
a  fortnight,  the  depreciation  was  25  per  cent.,  although  there 
had  been,  during  that  time,  neither  additional  issues  of  paper, 
nor  exportation  of  the  precious  metals.  We  will  quote  only  one 
more  instance  of  a  similar  nature.  During  the  general  suspen- 
sion of  specie  payments  in  the  United  States,  the  depreciation 
of  the  bank  notes  varied  in  the  several  sea-ports.  Those  of  the 
Baltimore  banks  were  at  20  per  cent,  discount  in  January  1815. 
The  Treaty  of  Peace  was  ratified  and  published  in  the  month  of 
February ;  and  as  the  suspension  of  specie  payments  had  not 
lasted  six  months,  and  was  caused  by  the  war,  a  general  expec- 
tation immediately  prevailed,  that  those  payments  would  be 
forthwith  resumed.  Accordingly,  bank  notes  rose  everywhere 
in  value,  and,  in  March,  the  discount  on  those  of  Baltimore  was 
only  5  per  cent.  As  that  expectation  was  disappointed,  the  notes 
again  sunk  in  value,  and,  in  July,  those  of  Baltimore  were  again 
at  a  discount  of  20  per  cent.  It  is  believed,  that  no  doubt  can 
remain,  that  a  paper  currency  liable  to  fluctuations  like  those, 
and  originating  in  causes  that  batHe  all  calculation,  never  can, 
by  any  skill  whatever,  be  made  a  stable  standard  of  value. 

The  paper  currency  of  the  United  States  is  of  a  very  dif- 
ferent character,  and,  according  to  the  general  acceptation  of 
that  term,  consists  almost  exclusively  of  bank  notes  payable  on 
demand  in  specia.  It  may  however  be  questioned,  whether  there 
are  not  other  species  of  paper  founded  on  credit,  which  ought 
to  be  considered  as  making  part  of  the  currency,  and  not  merely 
as  substitutes. 


28  BANKS  AND  CURRENCY. 

There  are  in  England,  where  incorporated  country  bank§, 
issuing  paper,  are  as  numerous,  and  have  been  attended  with 
the  same  advantages  and  the  same  evils  as  our  country  banks, 
some  extensive  districts,  highly  industrious  and  prosperous,  where 
no  such  bank  does  exist,  and  where  that  want  is  supplied  by 
bills  of  exchange  drawn  on  London.  This  is  the  case  in  Lan- 
cashire, which  includes  Liverpool  and  Manchester,  and  where 
such  bills,  drawn  at  ninety  days  after  date,  are  indorsed  by  each 
successive  holder,  and  circulate  through  numerous  persons  be- 
fore they  reach  their  ultimate  destination,  and  are  paid  by  the 
drawee.  It  has  been  contended  that  these  substitutes  for  cur- 
rency, and  in  one  respect  performing  its  office,  must  be  consid- 
ered as  forming  part  of  it ;  and  this  assertion  has  been  carried 
so  far,  as  to  insist  that  there  was  in  England  a  circulation  of  one 
hundred  and  fifty  millions  of  dollars  in  bills  of  exchange,  which 
was  of  the  same  character.  As  this  view  of  the  subject  would 
materially  affect  the  result  of  any  inquiry  respecting  currency, 
the  question  must  be  examined,  and  extended  to  private  notes 
and  to  bank  deposits. 

It  is  difficult  to  distinguish  a  note  on  demand  drawn  by  a  pri- 
vate individual  from  a  bank  note,  in  countries  where  every  in- 
dividual is  left  at  liberty  to  throw  such  notes  in  circulation  as 
part  of  the  currency.  The  discrimination  has  always  been  made 
on  the  Continent  of  Europe,  where  it  is  not  believed  that  any 
paper  of  that  description  has  ever  been  permitted  to  be  issued 
by  any  person  or  company  not  specially  authorized  to  that  effect. 
We  are  not  aware  that  any  similar  general  restriction  exists  in 
Great  Britain,  or  that  others  are  to  be  found  there,  than  the 
clause,  in  favor  of  the  Bank  of  England,  which  forbids  banking 
associations  to  consist  of  more  than  a  limited  number  of  part- 
ners, and  the  late  laws  forbidding,  except  in  Scotland,  the  issue 
of  notes  under  five  pounds.  The  same  liberty  seems  to  have 
originally  existed  in  the  United  States,  but  has  subsequently  been 
restrained  by  their  several  laws  to  incorporated  banks.  A  soli- 
tary exception  is  to  be  found  in  Mr.  Stephen  Girard's  Bank, 
which  was  previously  established,  and  which,  from  his  great 
wealth,  skilful  caution,  and  personal  character,  is  justly  entitled 
to  as  much  credit  as  any  chartered  bank  in  the  United  States, 
Congress  has  not,  however,  passed  any  law  preventing  the  issue 
of  notes  by  the  corporation  of  the  city  of  Washington,  and  there 
is  still  a  small  amount  of  paper  in  circulation,  issued  by  the  state 
of  North  Carolina.  In  every  other  respect,  the  currency  of  the 
United  States,  so  far  as  it  consists  of  notes,  is  strictly  confined  to 
bank  notes  issued  by  chartered  companies. 

A  bill  of  exchange,  drawn  by  an  individual  or  individuals, 
who  do  not  issue  notes  having  the  character  of  currency,  ap- 
pears to  us  to  be  clearly  distinguishable  from  a  bank  note,  though 
it  is  a  substitute,  and  lessens  the  amount  of  currency  which 


BANKS  AND  CURRENCY  20 

would  otherwise  be  required.  A  payment  made  in  bank  notes 
is  a  discharge  of  the  debt,  the  creditor  having  no  further  re- 
course against  the  person  from  whom  he  has  received  the  notes, 
unless  the  bank  had  previously  failed.  The  bill  of  exchange 
does  not  discharge  the  debt,  the  person  who  receives  it  having 
his  recourse  against  the  drawer  and  every  preceding  indorser, 
in  case  the  drawee  should  fail  or  refuse  to  pay.  But  the  essen- 
tial distinction  is,  that  the  bills  of  exchange  are  only  a  promise 
to  pay  hi  currency,  and  that  the  failure  of  the  drawers,  drawees, 
and  indorsers  does  not,  in  the  slightest  degree,  affect  the  value 
of  the  currency  itself,  or  impair  that  permanent  standard  of 
value  by  which  the  performance  of  all  contracts  is  regulated. 
The  case  is,  however,  quite  different,  when  the  bills  are  drawn 
by  a  bank  authorized  to  issue  bank  notes  which  make  part  of 
the  currency.  We  perceive  no  difference  between  such  drafts, 
particularly  when  paid  at  sight,  and  either  post  notes  or  ordinary 
notes.  Five  dollar  drafts,  drawn  by  the  branches  of  the  Bank 
of  the  United  States  on  the  bank,  circulate  at  this  moment  in 
common  with  the  usual  five  dollar  notes.  Similar  drafts,  varying 
in  amount  to  suit  the  convenience  of  purchasers,  are  daily 
drawn  by  the  bank  on  its  offices,  and  by  those  offices  on  each 
other,  or  on  the  bank.  Many  of  those  drafts  pass  through  sev- 
eral hands,  and  circulate  several  months,  in  distant  parts  of  the 
country,  before  they  are  presented  for  payment.  The  holders 
of  those  bills  have  the  same  recourse  against  the  bank,  as  the 
holders  of  bank  notes.  Those  bills  are  of  the  same  character, 
depend  on  the  same  security,  and  in  case  of  failure  would  share 
the  same  fate  with  bank  notes.  Though  not  usually  included 
in  the  amount  of  the  circulation  of  the  bank,  we  cannot  but 
consider  the  average  amount  in  actual  circulation,  as  making 
part  of  the  currency  of  the  country.  A  question  somewhat  more 
difficult  arises  with  respect  to  credits  in  account  current  on  the 
books  of  the  banks,  commonly  designated  in  the  United  States 
by  the  name  of  "  deposits,"  and  which  may  perhaps  be  more 
easily  solved  by  reducing  it  to  its  most  simple  form,  that  is  to 
say,  by  first  considering  banks  purely  of  deposit. 

That  of  Hamburg,  which  still  exists,  is  the  most  perfect  of 
the  kind.  It  neither  issues  bank  notes,  nor  discounts  notes  or 
bills  of  exchange,  but  only  receives  silver  in  bars  on  deposit. 
For  every  bar  containing  a  certain  weight,  called  "  marc  of 
Cologn,"  (equivalent  to  3,608  grains  troy  weight,)  of  silver  of  a 
certain  standard,*  the  bank  gives  a  credit  on  its  books  of  442 
lubs  Bco-  (27  marcs  10  lubs  Bco)  money  of  account.  Any  person 
having  a  credit  on  the  books  of  the  bank,  may  be  paid  in  simi- 
lar bars  at  the  rate  of  444  lubs  Bco-  for  a  marc  weight  of  Co- 

*  Containing,  according  to  most  authorities,  forty-seven  parts  pure  silver,  and  one 
part  of  alloy. 


30  BANKS  AND  CURRENCY. 

logn  of  silver  of  the  same  standard.     The  difference,  which  is 
less  than  one-half  per  cent.,  defrays  the  expenses  of  the  estab- 
lishment.     All  the  large  payments  are  effected  in  Hamburg 
by  checks  on  the  bank,  and  by  a  corresponding  transfer  of  tl 
credit  on  its  books  from  one  individual  to  another.     The  utility 
of  the  establishment  consists  not  only  in  the  greater  convenienc 
and  rapidity  with  which  the  payments  are  effected,  but  also 
having  substituted  silver  of  an  uniform  standard,  to  a  currency 
which  consisted  of  German  coins,  varying  in  standard,  weight 
and  denomination.     The  aggregate  amount  of  credits  on  tl 
books  of  the  bank,  being  at  all  times  precisely  equal,  at  the  ral 
above  mentioned,  to  the  quantity  of  silver  in  its  vaults,  it  woulc 
be  incomprehensible,  and,  indeed,  absurd,  to  suppose,  that  sucl 
large  capital,  having  an  intrinsic  value,  should  voluntarily  be 
buried  in  the  vaults,  unless  its  representative,  or  the  credits  on 
the  books  of  the  bank,  performed  every  office  of  currency.     It 
is  undeniable  that  this  is  the  fact  in  every  respect,  every  pay- 
ment being  effected  by  transfers  of  those  credits,  and  their  con- 
vertibility at  any  time  into  a  determined  weight  of  pure  silver, 
affording  the  best  possible  standard  of  value.    This  indeed  regu- 
lates exclusively  the  value  of  all  the  coins,  whether  in  circula- 
tion for  small  payments,  or  brought  to  market  as  bullion. 

Let  it  be  supposed  now,  that  it  had  been  found  from  long  ex- 
perience, that  the  quantity  of  silver  in  the  vaults,  through  all 
its  fluctuations,  had  never  been  less  than  a  certain  sum,  equiva- 
lent, for  instance,  to  two  millions  of  dollars.  The  directors  of 
the  establishment  might  conclude  that  this  amount  would,  under 
no  circumstances  whatever,  be  withdrawn,  or  in  other  words, 
that  this  sum  was  the  minimum  of  the  currency  wanted  to  effect 
the  payments  made  in  bank.  They  might  therefore  think  them- 
selves justifiable,  in  withdrawing  that  dormant  capital  from  the 
vaults,  and  converting  it  into  an  active  capital,  by  lending  it  to 
individuals.  In  this  case,  the  amount  of  credits  on  the  books  of 
the  bank  would  remain  the  same,  as  if  that  sum  in  silver  had 
not  been  withdrawn  from  its  vaults ;  and  all  the  payments  ef- 
fected by  the  transfers  of  those  credits  would  continue  to  be 
made  precisely  as  theretofore.  The  amount  of  those  credits 
would  therefore  continue  to  be,  in  every  respect,  the  currency 
of  Hamburg,  differing  from  what  it  was  formerly,  only  in  being 
sustained  by  a  less  amount  in  specie,  and  in  depending,  for  its 
ultimate  security,  on  the  solidity  of  those  to  whom  the  silver 
withdrawn  from  the  vaults  had  been  loaned. 

What  we  have  stated  as  a  supposititious  case,  actually  took 
place  in  the  Bank  of  Amsterdam,  constituted  on  nearly  the  same 
principles  as  that  of  Hamburg ;  and  from  which  the  directors 
secretly  withdrew  more  than  four  millions  of  dollars,  which  they 
lent  principally  to  the  Province  of  Holland  and  to  the  City  of 
Amsterdam.  And  it  is,  as  is  well  known,  what  is  alwayt  done 


BANKS  AND  CURRENCY.  -       31 

openly  and  in  perfect  good  faith  by  all  our  banks,  as  well  as  by 
the  Bank  of  England  and  by  that  of  France.  The  credits  in 
account  current  or  "  deposits"  of  our  banks  are  also,  in  their 
origin  and  effect,  perfectly  assimilated  to  bank  notes.  Any  per- 
son depositing  money  in  the  bank,  or  having  any  demand  what- 
ever upon  it,  may  at  his  option  be  paid  in  notes,  or  have  the 
amount  entered  to  his  credit  on  the  books  of  the  bank.  The 
bank  notes  and  the  deposits  rest  precisely  on  the  same  basis ; 
for  immediate  payment  on  the  amount  of  specie  in  the  vaults  j 
for  ultimate  security  on  the  solidity  of  the  debtors  of  the  bank, 
In  case  of  a  run  upon  a  bank,  or  of  its  failure,  the  security  of 
the  holders  of  notes  is  lessened  in  proportion  to  the  amount  of 
deposits  due  by  the  bank.  We  can  in  no  respect  whatever  per- 
ceive th'e  slightest  difference  between  the  two :  and  we  cannot 
therefore  but  consider  the  aggregate  amount  of  credits  payable 
on  demand,  standing  on  the  books  of  the  several  banks,  as  being 
part  of  the  currency  of  the  United  States.  This,  it  appears  to 
us,  embraces  not  only  bank  notes,  but  all  demands  upon  banks 
payable  at  sight,  and  including  their  drafts  and  acceptances. 
But  in  order  that  such  deposits,  bills  of  exchange,  or  other  paper 
founded  on  credit,  should  make  part  of  the  currency,  it  seems 
necessary,  that  they  should  constitute  a  demand  upon  banks 
that  do  issue  currency,  or  that,  as  at  Hamburg,  a  transfer  of 
credit  on  the  books  of  the  bank  should  be  a  legal  tender.  If,  in 
comparing  the  amount  of  currency  in  different  countries,  we 
have  only  included  specie  and  actual  issues  of  paper,  it  was 
partly  in  conformity  with  received  usage,  and  partly  from  want 
of  information  respecting  the  amount,  in  other  countries,  of  the 
bank  credits,  which  may  be  considered  as  perfectly  similar  to 
our  deposits. 

Credit  is  essential  to  commerce :  but  whenever  it  receives  a 
shock,  a  commercial  revulsion  and  distress  must  necessarily 
ensue.  This  will  always  affect  the  currency  to  a  certain  ex- 
tent, since  there  must  be  a  greater  demand  for  it,  in  propor- 
tion as  the  resources  arising  from  credit  are  impaired.  But 
where,  as  in  the  United  States,  the  currency  itself  rests  on 
credit,  and  the  same  institutions  which  issue  that  currency  are 
those  from  which  accommodations  are  expected,  want  of 
credit  is  most  liable  to  be  mistaken  for  a  want  of  currency. 

Although  the  causes  of  such  distress,  and  of  a  real  or  pre- 
sumed scarcity  of  currency,  are  of  the  same  nature,  they  may* 
as  somewhat  dissimilar  in  their  immediate  effects*  be  distin- 
guished as  external  or  internal.  As  the  imports  and  exports 
of  a  country  are  now  but  rarely  effected  by  the  same  persons^ 
there  are  always,  in  consequence  of  the  commercial  intercourse 
between  two  countries,  creditors  and  debtors  on  both  sides; 
It  is  obviously  the  interest  of  both  to  exchange  or  sell  those 
debts,  when  the  exporter  does  not  want  to  import,  nor  the  im- 


32  BANKS  AND  CURRENCY. 

porter  to  export  merchandise.  A  bill  of  exchange,  drawn  from 
the  United  States  on  England,  is  an  obligation  on  the  part  of 
the  drawer  to  exchange,  for  a  sum  paid  to  him  in  the  United 
States,  an  equivalent  in  England.  When  the  credits  and  debits 
respectively  payable  at  the  same  time  are  nearly  equal, 
the  exchange  is  made  on  equal  terms.  In  proportion  as  the 
debt  of  the  United  States  to  England  is  greater  than  that  of 
England  to  the  United  States,  the  demand  for  bills  on  England 
will  become  greater  than  the  supply ;  and  the  drawer  will  ob- 
tain a  greater  sum  in  the  United  States,  than  that  which  by 
his  bill  he  obliges  himself  to  pay  in  England.  Whenever  the 
difference  becomes  so  great,  as  to  exceed  the  expense  and  risk 
of  transporting  precious  metals  to  England,  those  metals  will 
be  exported  in  preference  to  a  remittance  in  bills.  When  the 
commercial  transactions  between  two  countries  are  compara- 
tively small,  and  the  stock  of  gold  and  silver  large,  their  ex- 
portation, particularly  in  neighboring  countries,  soon  pays  the 
balance  and  restores  the  equilibrium.  When,  as  between  the 
United  States  and  England,  the  respective  imports  and  exports 
are  very  large,  the  balance  due  may  be  increased  in  propor- 
tion ;  and  as  the  stock  of  the  precious  metals  in  the  United 
States  is  comparatively  small,  the  exchange  may  remain  for 
years  unfavorable,  and  the  precious  metals  continue  to  be  ex- 
ported, until  the  balance  is  actually  paid  from  the  proceeds 
of  the  exports  generally,  or  converted,  by  the  sale  of  American 
stock,  into  a  debt  not  immediately  demandable.  This  appa- 
rently continued  drain  was  considered,  in  former  times,  as  an 
evil  of  great  magnitude ;  and  severe  laws  were,  in  most  coun- 
tries, enacted  against  the  exportation  of  specie.  Experience 
has  shown,  not  only  that  those  laws  were  inefficient,  but  also 
that  the  best,  if  not  only  means,  to  insure  a  uniform  and  suffi- 
cient supply  of  any  foreign  product,  when  there  is  no  other 
object  in  view,  is  to  lay  no  restraint  whatever  on  its  importa- 
tion and  exportation.  Commerce,  when  not  interrupted  by  war, 
or  other  causes,  is  always  found  to  supply  the  amount  of  pre- 
cious metals  which  may  be  wanted.  Numerous  striking  proofs 
might  be  adduced :  it  is  sufficient  to  recollect,  that  the  average 
rate  of  exchange  on  England,  from  the  beginning  of  1821  to  the 
end  of  1829,  has  been  $4  87  cents  per  pound  sterling,  (about 
9f  per  cent,  premium  on  nominal  par,)  or  2f  per  cent,  above 
the  true  par;  that  it  never  was,  during  the  whole  of  that 
time,  below  $4  60,  at  which  rate,  gold  being  underrated  by  our 
mint  regulations,  commences  to  be  exported,  and  that  that  pe- 
riod was  in  no  degree  remarkable  for  scarcity  of  specie. 

Being  obliged  to  refer  to  the  rate  of  exchange,  it  must  be  re- 
collected, that  what  is  universally  meant  by  par,  is  the  promise 
to  pay,  in  another  place,  a  quantity  of  pure  silver  or  gold,  equal 
in  weight  to  the  quantity  of  pure  silver  or  gold  contained  in 


BANKS  AND  CURRENCY  S3 

the  coins,  with  which  the  drawer  of  the  bill  of  exchange  is  paid. 
When  bills  are  drawn  at  long  dates,  and  payable  at  a  distant 
place,  the  time  which  elapses  between  the  purchase  of  the  bill 
from  the  drawer,  and  its  payment  by  the  drawee,  must  be  taken 
into  consideration,  in  order  to  calculate  what  would  be  an  equal 
exchange,  as  distinguished  from  the  par  of  exchange.  There  is 
no  other  difficulty,  but  that  of  ascertaining  their  respective 
weights,  in  order  to  calculate  the  par  of  exchange  between  coun- 
tries having  the  same  standard  of  value,  or  in  which  payments 
are  usually  made  with  the  same  metal.  This  being  the  case  in 
the  United  States  and  in  France,  and  the  French  kilogramme 
being  equivalent  to  about  15,435  grains,  troy  weight,  the  par 
of  exchange  of  the  United  States  on  France,  is  at  the  rate  of 
about  5  francs  and  34J  centimes  for  a  dollar,  since  the  French 
franc  contains  4  J  grammes,  and  the  United  States'  dollar  371^ 
grains  of  pure  silver.  Allowing  1J  per  cent,  on  account  of  the 
90  days  which  will  usually  elapse  between  the  day  on  which 
the  value  of  a  bill  payable  60  days  after  sight  is,  in  our  country, 
paid  to  the  drawer,  and  the  day  on  which  that  bill  is  paid  in  the 
other  country  by  the  drawee,  it  will  be  found  that  the  equal  ex- 
change between  the  United  States  and  France  is,  on  such  bills, 
at  the  rate  of  francs  5,41  if  drawn  from  the  United  States  on 
France,  and  at  the  rate  of  francs  5,28  for  one  dollar,  if  drawn 
from  France  on  the  United  States. 

But  if  one  of  the  two  metals  is,  by  mint  regulations,  under- 
rated or  excluded  in  one  country,  whilst  the  other  metal  is  in 
the  same  manner  excluded  in  another  country,  the  usual  pay- 
ments will  be  made  in  different  metals  in  those  two  countries ; 
and  the  par  of  exchange  between  them  must,  then,  as  is  the  case 
between  the  United  States  and  England,  depend  on  the  relative 
value  of  gold  and  silver  at  the  time,  and  vary  with  every  fluc- 
tuation of  that  relative  value.  These  fluctuations  are,  however, 
confined  within  narrow  limits;  and  the  medium  par  of  exchange 
between  the  United  States  and  England,  deduced  from  the  aver- 
age premium  on  gold  over  silver  coins  in  France,  is  about  $4  75, 
for  one  pound  sterling,  or  near  7  per  cent,  above  the  nominal 
par  assumed  in  the  usual  quotations  of  exchange.  It  is  in  those 
quotations  supposed,  that  one  pound  sterling  is  equal  to  $4  44  4-9, 
or,  in  other  words,  that  one  dollar  is  equal  to  4.?.  6d.  sterling.  It  is 
not  necessary  to  investigate,  whether  this  presumed  equality  or 
par  was  derived  from  the  intrinsic  value  of  some  ancient  Span- 
ish dollar,  no  longer  current,  or  whether  it  was  adopted  as  con- 
venient for  the  conversion  of  most  of  the  currencies  of  the  Brit- 
ish colonies  into  British  currency.  It  is  certain  that  this  imagin- 
ary par  does  not  even  correspond  with  that  which,  though 
erroneously,  might  be  deduced  from  comparing  separately  the 
gold  and  silver  coins  of  the  two  countries  with  each  other  respec- 
tively ;  since  this  would  be,  if  comparing  gold  to  gold,  about 


84  BANKS  AND  CURRENCY. 

$4  56,  and  if  comparing  silver  to  silver,  (at  the  former  rate  of 
62  shillings  sterling  for  one  pound  troy  weight  of  silver,  old  British 
standard,)  about  $4  63  for  a  pound  sterling.  The  dealers  in  ex- 
change are  at  no  loss  to  make  their  calculations,  whatever  rate 
may  be  assumed  as  par  in  the  usual  quotations :  but  this  puzzle 
and,  in  various  respects,  misleads  those  who,  without  investiga- 
tion, naturally  suppose  that  what  has  been  assumed  as  such 
the  true  par  of  exchange. 

The  causes  of  the  fluctuations  of  exchange  between  distanl 
places  in  an  extensive  country,  or  between  different  countrie 
are  of  the  same  nature,  and  may  occasion  a  similar  transport 
tion  of  the  precious  metals  from  one  place  to  another.  We  wil 
hereafter  examine  how  that  from  one  part  of  the  United  State 
to  another  has  been  affected  by  the  Bank  of  the  United  States. 
But  there  is  this  difference,  between  a  commercial  distress  and 
presumed  scarcity  of  currency,  due  to  internal  causes,  whilst 
the  foreign  exchanges  remain  favorable,  and  a  similar  distress 
arising  from  la/ge  foreign  debts,  and  accompanied  by  an  unfa- 
vorable rate  of  exchange,  that,  in  the  last  case,  there  is  an  ex- 
portation of  the  coins  of  the  country  which  cannot  take  place 
in  the  first.  If  the  same  effects,  in  other  respects,  are  never- 
theless the  same  in  both  cases ;  if  in  both,  the  same,  and  some- 
times general  distress  equally  prevails;  if  the  same  difficulty 
occurs  in  the  payment  of  debts ;  if  the  same  complaint  is  made 
of  want  of  money,  whether  specie  is  exported  or  not,  it  is  obvi- 
ous that  there  must  be  another  cause,  besides  an  actual  scarcity 
of  currency,  for  the  real  distress  which  is  felt ;  and  that  what  is 
called  "  want  of  money,"  is  not  "  want  of  currency."  It  will  be 
found  that  this  cause  is  universally  overtrading,  and  that  the 
want  of  money,  as  it  is  called,  is  the  want  of  exchangeable  or 
saleable  property  or  commodities,  and  the  want  of  credit.  The 
man  who  says  that  he  wants  money,  could  at  all  times  obtain 
it,  if  he  had  either  credit  or  saleable  commodities. 

Overtrading  consists  in  undertakings  or  speculations  of  every 
possible  description,  which  fail  altogether,  or  of  which  the  re- 
turns are  slower  than,  under  sanguine  expectations,  had  been 
calculated,  or  the  proceeds  of  which,  (too  many,  tempted  by 
temporary  high  prices  or  profits,  having  embarked  in  the  same 
branch  of  business,)  greatly  exceed  the  demand,  and  glut  the 
market.  A  great  loss  may  be  experienced  by  those  who  have 
entered  into  any  such  undertakings  with  their  own  resources. 
But  when  resting  principally  on  credit,  and  pursued  at  the  same 
time  by  a  great  portion  of  the  dealers  or  men  of  enterprise,  a 
general  impossibility  of  fulfilling  previous  engagements  takes 
place,  which  affects  even  those  wrho  are  ultimately  solvent. 
When  that  mutual  confidence,  which  is  the  sole  foundation  of 
credit,  is  once  shaken,  the  capitals  that  are  usually  loaned  can 
no  longer  be  ebtained,  the  usual  amount  of  bills  of  exchange, 


BANKS  AND  CURRENCY.  85 

discounted  notes,  or  other  commercial  papers  founded  on  credit, 
is  lessened,  and  specie  or  currency  itself  becomes  comparatively 
scarce,  partly  because  some  is  hoarded,  principally  because  a 
portion  of  its  substitutes  is  withdrawn  from  circulation.  Yet 
specie,  under  those  circumstances,  acts  but  a  subordinate  part, 
its  scarcity  being  the  effect,  and  not  the  cause,  of  the  evil,  and 
the  remedy  to  this  consisting  in  restoring  credit  and  confidence, 
which  will  always  procure  a  sufficient  amount  of  currency,  and 
not  in  an  attempt  to  increase  the  quantity  of  currency,  which 
can  produce  no  substantial  benefit  until  confidence  is  restored. 
When  it  consists  of  paper  founded  on  credit,  any  increase  is 
inefficient  for  remedying  the  evil,  unless  it  be  issued  by  an  insti- 
tution, the  credit  of  which  has,  in  the  general  wreck,  remained 
unaffected  and  unimpaired. 

The  commencement  of  the  year  1793,  was,  in  England,  a 
season  of  great  and  universal  commercial  distress.  It  had,  as 
usual,  been  preceded  by  a  period  of  great  apparent  prosperity, 
which  had  stimulated  overtrading ;  and  this  had  been  followed 
by  its  unavoidable  consequences.  More  than  one  hundred  coun- 
try banks  failed,  or  suspended  their  payments ;  the  distress  was 
general,  the  credit  of  solvent  houses  was  affected,  the  usual  ac- 
commodations, which  enabled  them  to  have  their  bills  discount- 
ed, and  to  meet  the  demands  against  them,  were  withdrawn, 
and  the  complaint  of  want  of  money  was  universal.  Under 
those  circumstances,  government  interfered,  and  loaned,  or  of- 
fered to  loan,  to  solvent  dealers,  five  millions  sterling  in  exche- 
quer bills.  The  remedy  was  effectual ;  the  whole  amount  offered 
to  be  loaned  was  not  even  applied  for ;  and,  in  a  very  short 
time,  confidence  was  restored,  and  every  one  who  was  not  ac- 
tually insolvent  was  able  to  meet  his  engagements.  But  exche- 
quer bills  are  not  currency,  but  only  a  promise  to  pay  currency 
at  the  end  of  one  year.  Government  did  not  lend  currency,  or 
add  a  single  shilling  to  its  amount.  The  credit  of  individuals 
had  received  a  severe  and  general  shock,  and  that  of  govern- 
ment, which  was  unimpaired,  was  substituted  for  private  credit. 
Those  who  had  capital  to  lend,  and  would  not  advance  it  on  pri- 
vate security,  or  who,  in  other  words,  would  not  discount  the 
bills  of  individuals,  lent  that  capital,  or  the  currency  which  was 
wanted,  on  public  security,  or,  in  other  words,  discounted  the 
exchequer  bills,  that  is  to  say,  the  bills  of  government.  The 
distress,  the  pretended  want  of  money,  was  relieved,  not  by  any 
additional  issues  of  currency,  the  amount  of  which  must  there- 
fore have  been  sufficient,  but  by  restoring  private  confidence 
and  private  credit. 

It  is  also  evident,  that  what  was  then  effected  by  government, 
might  have  been  done  by  the  Bank  of  England,  had  that  insti- 
tution, more  sparing  of  its  resources,  during  the  preceding  pe- 
riod of  prosperity  and  incautious  enterprise,  been  enabled,  when 


3fl  BANKS  AND  CURRENCY 

the  revulsion  took  place,  to  lend  its  credit  to  solvent  houses,  by 
discounting  their  bills,  and  increasing  its  issues  of  paper  curren- 
cy. It  may  be  presumed,  that,  having  already  overstrained  its 
resources,  the  bank  could  not  have  done  this,  without  endan- 
gering its  own  credit,  and  running  the  risk  of  being  unable  to 
pay  its  own  notes,  if  their  amount  was  increased.  But  the  mode 
adopted  by  government,  and  which  proved  so  efficacious,  mak< 
it  obvious,  that,  had  the  bank  been  enabled,  without  the  aid 
the  treasury,  to  relieve  the  distress,  and,  what  was  called  the 
want  of  money,  the  relief  afforded  would  have  been  the  result 
much  less,  if  at  all,  of  the  enlarged  issues  of  bank  notes,  than  of 
the  bank  lending  its  credit  to  those  solvent  dealers  whose  credit 
was  impaired. 

As  a  bank  cannot  increase  its  discounts  without  increasing  its 
circulation,  the  two  operations,  being  in  its  hands  inseparable, 
are  generally  confounded.  The  manner  in  which  the  British 
government  afforded  relief  in  the  year  1793,  conclusively  proves 
that  they  are  essentially  distinct,  even  in  a  country  where  the 
currency  consists  principally  of  paper  founded  on  credit,  and 
that  the  demand  always  made  on  banks  in  times  of  pressure,  for 
enlarged  issues  of  bank  notes,  is  not  a  demand  for  currency  but 
for  credit.  Cautious  and  well-directed  banks  will  always  afford 
great  relief  in  such  times,  if  enabled  by  the  previous  prudent 
administration  of  their  affairs  to  lend  their  credit  to  solvent  deal- 
ers ;  which  cannot  be  done  without  enlarging  their  issues.  If, 
on  the  contrary,  this  has  already  been  done  to  its  utmost  extent, 
if  during  a  period  of  high  prices  and  great  apparent  prosperity, 
the  spirit  of  enterprise,  naturally  excited  by  that  state  of  things, 
and  which  required  then  to  be  checked,  has,  on  the  contrary, 
been  stimulated  by  incautious  loans  and  consequent  issues  of 
paper  on  the  part  of  the  banks,  the  result  will  be,  and  has  every- 
where always  been,  as  fatal  as  unavoidable.  When  the  revul- 
sion takes  place,  when,  from  excessive  competition  or  imprudent 
speculation,  the  market  becomes  glutted  with  a  superabundance 
of  any  species  of  commodity,  often  in  the  United  States  of  land 
itself,  or  when,  from  want  of  skill  or  any  other  cause,  undertak- 
ings have  altogether  failed,  or  when  the  slow  returns  of  such 
undertakings  require  years  to  be  realized,  and  both  capital  and 
credit  are  exhausted ;  at  the  very  time  when  the  aid  of  banks 
would  be  most  wanted,  those  institutions,  prematurely  disabled, 
instead  of  simultaneously  enlarging  their  issues,  and  lending 
their  credit  to  solvent  but  embarrassed  dealers,  manufacturers, 
and  farmers,  are  compelled  in  self  defence  to  contract  their 
issues  and  loans,  and  thus  greatly  to  aggravate  the  evil,  which 
they  had  at  least  neglected  to  check,  if  they  were  not  instru- 
mental in  its  growth. 

In  countries,  therefore,  the  currency  of  which  consists  princi- 
pally of  bank  paper,  banks  will  have  a  beneficial  or  pernicious 


BANKS  AND  CURRENCY.  37 

influence  on  credit,  and  on  a  currency  depending  on  credit,  ac- 
cording to  the  manner  in  which  they  may  be  administered ;  use- 
ful when  their  operations,  in  prosperous  times  and  whilst  under 
their  control,  are  regulated  by  probity,  great  discretion  and 
skill,  pernicious  when  their  administration  is  defective  in  any  of 
those  respects.  But  in  countries,  where  the  currency  consists 
wholly  or  principally  of  the  precious  metals,  and  where  bankers 
lend  money  or  discount  bills,  but  do  not  issue  a  paper  currency, 
the  two  operations  are  never  confounded ;  and  although  not  ex- 
empt from  commercial  revulsions,  these  will  be  of  less  common 
occurrence,  and  have  little  or  no  influence  on  currency  itself.* 
It  may  be  confidently  affirmed,  that  the  precious  metals,  under 
any  circumstances  whatever,  and  amidst  all  the  temporary 
fluctuations  arising  from  a  disproportion  between  supply  and 
demand,  continue  to  be  a  more  permanent  standard  of  value 
than  any  other  commodity,  or  any  species  of  paper  resting  on 
an  element  so  variable  as  credit. 

We  cannot  conceal  from  ourselves,  that  specie-paying  banks 
are  not  only  exposed  to  extraordinary  drains  from  abroad,  but 
are  also  occasionally  controlled  by  moral  causes,  the  effects  of 
which  cannot  be  calculated,  nor  without  great  skill  and  discre- 
tion be  always  prevented.  These  never  affect  a  metallic  cur- 
rency, which  has  an  intrinsic  value,  varying  less  than  that  of 
any  other  commodity,  and  not  at  all  depending,  as  paper,  on 
confidence,  fear,  conjectures,  or  any  of  the  fluctuations  of  pub- 
lic opinion.  It  is  equally  clear,  that  extraordinary  drains  of 
specie,  occasionally  inconvenient  when  the  currency  is  purely 
or  principally  metallic,  may  be  fatal  to  one  which  consists  of 
bank  notes  convertible  at  will  into  specie.  Supposing  the  cur- 
rency of  a  country  to  consist  of  one  hundred  millions,  a  drain  of 
twenty  millions  from  abroad  would  produce  great  inconvenience, 
but  not  beyond  that  of  contracting  the  metallic  currency  to 
that  extent,  until  commerce  had  supplied  the  deficiency.  But, 
if  consisting  of  bank  notes,  sustained  by  twenty  millions  of  specie 
in  the  vaults  of  the  banks,  the  basis  being  withdrawn,  the  whole 
fabric  is  at  once  overthrown,  and  specie  payments  must  be  sus- 
pended. 

One  of  the  most  fatal  effects  of  that  suspension  is  the  great 
and  unavoidable  distress,  which  attends  a  return  to  a  specie 
currency,  particularly  when  the  suspension  has  been  of  long 
continuance.  Whilst  this  lasts,  the  loss  falls  on  the  creditors : 
but  new  contracts  are  daily  made,  founded  on  the  existing  state 
of  the  currency ;  and  should  the  suspension  continue  twenty 
years,  as  was  the  case  in  England,  as  almost  all  the  contracts  in 
force,  and  not  yet  executed,  at  the  time  when  specie  payments 

*  See  hereafter  Mr.  Baring's  evidence,  and  Mr.  Tooke,  respecting  the  effect  of  a 
metallic  currency,  in  France. 


58  BAtfKS  AND  CURRENCY. 

are  resumed,  must  have  been  made  when  the  currency  was 
depreciated,  the  obligation  to  discharge  them  in  specie  is  con- 
trary to  equity,  falls  on  the  debtors,  who  are  always  the  part 
of  the  community  less  able  to  bear  the  burthen,  and  proves 
tfnore  calamitous  than  the  suspension  had  been.  Short  in  dura- 
•tion  as  this  had  been  in  the  United  States,  the  effect  was  sensi- 
bly felt :  and  to  this  cause,  which  also  occasioned  the  failure 
a  number  of  new  banks,  must  in  a  great  degree  be  ascribed  t 
general  distress  of  the  years  1818 — 1819.  The  relief  laws 
some  of  the  States,  and  in  England  the  corn  laws,  may  be  tra 
to  the  same  source.  In  that  country,  after  so  long  a  suspension 
of  specie  payments,  the  calamity  has  necessarily  been  far  more 
extensive  and  lasting.  It  is  yet  felt,  and  may  still  seek  for 
remedies  worse  than  the  evil,  and  call  for  small  notes,  excessive 
issues,  and  all  those  measures  which  would  necessarily  lead 
again  to  an  inconvertible  paper  money. 

Considerations  of  this  nature  may  well  have  suggested  to  the 
committee  of  the  House  of  Representatives,  the  question,  whether 
a  metallic  currency  would  not,  in  the  United  States,  have  been 
preferable  to  one  consisting  of  bank  notes.  We  would  incline 
to  the  affirmative,  if  the  system  was  not  already  established, 
and  if  we  believed,  that  an  attempt  to  return  to  a  pure  metallic 
currency,  which  could  not,  without  producing  great  evils,  be 
carried  suddenly  into  effect,  was  at  all  practicable.  Were  not 
this  the  case,  we  would  think,  that  a  system  of  commercial  credit, 
founded  on  deposits,  bills  of  exchange,  and  other  negotiable 
paper,  such  as  is  carried  on  by  the  bankers  of  London,  and  by 
all  the  bankers  of  the  Continent  of  Europe,  neither  of  whom 
issues  any  notes  in  the  shape  of  currency,  \vould  afford  to  com- 
merce, at  least  in  commercial  cities,  nearly,  if  not  altogether, 
the  same  accommodations  and  advantages  which  are  found  in 
the  present  system.  Commercial  revulsions,  and  numerous  fail- 
ures amongst  dealers,  as  they  may  occur  wrherever  there  has 
been  excessive  overtrading,  though  less  frequent,  do  neverthe- 
less occasionally  take  place  in  countries  which  have  only  a  me- 
tallic currency.  But  their  effect  is  generally  confined  to  the 
dealers,  extending  but  indirectly  and  feebly  to  the  community, 
and  never  affecting  the  currency,  the  standard  of  value,  or  the 
contracts  between  persons  not  concerned  in  the  failures.  It 
must  be  allowed  at  the  same  time,  that,  in  the  country,  where 
the  system  of  deposits  cannot  exist  to  the  same  extent  as  in  cities, 
banks  soberly  and  skilfully  administered,  stimulate  industry  by 
the  facility  which  their  loans  afford  to  men  of  enterprise,  and 
that  the  ability  of  those  banks  to  make  those  advances,  would 
be  much  curtailed,  if  altogether  precluded  from  issuing  notes. 

A  very  ingenious  plan  was  proposed  by  Mr.  Ricardo,  and  has 
since  been  expounded  and  defended  with  great  talent  by  Mr. 
M'Culloch,  intended  to  aflbrd  security  against  the  dangers  to 


BANKS  AND  CURRENCY,  8^ 

which  every  system  of  paper  currency  heretofore  devised  is 
exposed.  It  is  not  applicable  to  the  United  States,  as  it  is  founded 
on  the  exclusion  of  gold  and  silver  coins,  which,  by  our  Consti- 
tution, are  alone  a  legal  tender.  Some  plausible  objections  have 
been  made  to  it,  which,  for  that  reason,  it  is  not  necessary  to 
discuss ;  and  we  will  only  give  the  outline  of  the  plan. 

It  consists  in  the  total  exclusion  of  a  metallic  currency,  with 
the  exception  perhaps  of  the  silver  necessary  for  small  pay- 
ments, in  making  the  notes  of  the  Bank  of  England  a  legal  ten- 
der, and  in  imposing  on  that  institution  the  obligation  to  pay 
them,  on  demand,  in  gold  bars  of  the  proper  standard.  This 
last  provision  would  be  sufficient  to  prevent  any  depreciation  of 
the  notes,  whilst,  on  the  other  hand,  the  gold  bars  paid  by  the 
bank  could  not,  either  directly,  or  by  being  converted  into  coin, 
take  their  place  and  add  any  thing  to  the  amount  of  the  cur- 
rency. Any  call  on  the  bank  for  gold,  would  therefore  necessa- 
rily lessen  that  amount,  and  must  also  necessarily  cease,  when- 
ever this  was  somewhat  less  than  the  amount  in  value,  which  is 
indispensable  in  England  for  the  payments  in  currency.  For 
whenever  this  point  is  reached,  the  notes  must  be  worth  at  least 
as  much  as  their  nominal  value  in  gold  at  its  ordinary  price ; 
and,  in  the  case  of  unfavorable  exchanges,  the  drain  must  alto- 
gether cease,  as  soon  as  the  currency  is  sufficiently  contracted 
to  have  raised  its  value  to  a  rate  corresponding  with  that  of  ex- 
change. The  inconvenience  of  that  contraction  would  not,  it 
seems,  he  greater  than  if  the  currency  was  purely  metallic. 
Supposing  forty  millions  sterling  to  be  the  minimum  of  the  ab- 
solutely necessary  currency  under  an  unfavorable  state  of  for- 
eign exchanges,  the  community  would  be  protected  against  the 
danger  of  any  depreciation  in  the  nominal  value  of  the  notes, 
and  the  bank,  under  any  circumstances  whatever,  against  a 
drain  that  could  compel  it  to  suspend  its  payments,  provided  the 
value  of  the  gold  bars  in  its  vaults  was  always  equal  to  the  ex- 
cess of  its  issues  over  forty  millions.  The  plan  was  carried  into 
effect,  during  a  short  period,  by  the  Bank  of  England,  and  then 
discontinued,  for  reasons  which  have  not  been  explained,  and 
which  it  would  be  interesting  to  understand. 


It  is  well  known  that  the  Bank  of  England,  three  banks  in 
Scotland,  and  the  Bank  of  Ireland,  are  the  only  chartered  bank- 
ing institutions  in  the  United  Kingdom.  The  capital  of  the  Bank 
of  England,  amounting  now  to  fourteen  millions  pounds  sterling, 
has  been  loaned  altogether  to  government,  at  an  interest  of  3 
per  cent.,  and  is  not  to  be  reimbursed  till  the  expiration  of  the 
charter.  All  the  other  banks  of  England,  commonly  called 
country  banks,  consist  of  private  copartnerships,  without  any 
determined  capital,  and  the  members  of  which  are  liable  to  the 


4Q  BANKS  AND  CURRENCY. 

same  responsibilities  as  any  other  commercial  houses.  With  the 
exception  of  Mr.  Girard's  Bank,  all  the  banks  established  in  the 
United  States  are  joint  stock  companies  incorporated  by  law, 
with  a  fixed  capital,  to  the  extent  of  which  only  the  stockhold- 
ers are  generally  responsible.*  The  business  of  all  those  banks 
consists,  in  receiving  money  on  deposit,  in  issuing  bank  notes, 
and  in  discounting  notes  of  hand  or  bills  of  exchange.  A  por- 
tion of  the  capital  is  sometimes  vested  in  public  stocks;  but 
this  is  not  obligatory ;  and  in  this  they  differ  essentially  from 
the  Bank  of  England.  The  capital  of  this  institution,  being 
loaned  to  government,  and  not  depending  on  the  solidity  of  the 
paper  discounted,  affords  a  stable  guarantee  to  the  holders  of 
.notes  and  to  the  depositors.  The  bank  can  loan  to  individuals, 
or  advance  to  government  (beyond  its  capital  as  above  mention- 
ed) nothing  but  the  difference,  between  the  aggregate  of  its 
notes  in  circulation,  and  of  the  credits  in  account  current  on  its 
books,  and  the  amount  of  specie  in  its  vaults.  But  the  Ameri- 
can banks  lend  to  individuals,  not  only  that  difference,  but  also 
the  whole  amount  of  their  capital,  with  the  exception  only  of 
such  portion,  as  they  may  find  it  convenient,  but  are  not  obliged 
to  vest  in  public  stocks.  It  follows  that  the  security  of  the 
holders  of  notes,  and  of  the  depositors  generally,  rests  exclu- 
sively on  the  solidity  of  the  paper  they  have  discounted.  It 
might  seem,  on  the  other  hand,  that,  as  the  Bank  of  England 
cannot  apply  its  original  capital  to  any  immediate  use,  whilst 
the  American  banks  may,  by  curtailing  their  discounts,  call  in 
their  capital  on  any  emergency,  they  might,  without  risk,  put 
in  circulation  a  greater  proportionate  amount  of  notes.  But 
such  curtailment  can  never  be  made  to  any  considerable  extent, 
without  causing  much  distress;  and,  in  point  of  fact,  a  large 
portion  of  their  loans  consists  of  what  the  merchants  consider 
as  permanent  accommodation,  and,  in  the  country,  often  rests 
on  real  security.  This  departure  from  what  has  been  generally 
deemed  the  true  banking  principle,  must,  it  is  believed,  be  as- 
cribed to  the  original  disposition  of  the  capital. 

Whenever  therefore  an  American  bank  is  in  full  operation, 
its  debts  generally  consist,  1st,  to  the  stockholders,  of  the  capi- 
tal ;  2d,  to  the  community,  of  the  notes  in  circulation  and  of  the 
credits  in  account  current,  commonly  called  deposits :  and  its 
credits,  1st,  of  discounted  notes  or  bills  of  exchange  and  occa- 
sionally of  public  stocks;  2d,  of  the  specie  in  its  vaults  and  of 
the  notes  of,  and  balances  due  by,  other  banks ;  3d,  of  its  real 
estate,  either  used  for  banking  purposes  or  taken  in  payment  of 
debts.  Some  other  incidental  items  may  sometimes  be  intro- 
duced ;  a  part  of  the  capital  is  occasionally  invested  in  road, 
canal,  and  bridge  stocks,  and  the  debts,  secured  on  judgments, 

*  The  stockholders  are  made  personally  responsible,  in  some  of  the  states. 


BANKS  AND  CURRENCY.  4i 

or  bonds  and  mortgages,  are  generally  distinguished  in  the  offi- 
cial returns  of  the  banks.  In  order  to  give  a  clear  view  of  the 
subject,  we  annex  an  abstract  of  the  situation  of  the  thirty-one 
chartered  banks  of  Pennsylvania,  in  November,  1829. 

*  Capital,   -      -     -     -• $12,032,000 

Notes  in  circulation,      $7,270,000 

Deposits, 81758,000 

Surplus  funds,  ---------          1,142,000 


$29,202,000 

Bills  discounted,     --------      $17,526,000 

Public  stocks,f       -     -     -     -     -    y 

Road,  canal,  and  bridge  stocks,  -     -     -    4,620,000 

Debts  secured  on  mortgages,  &c.  ) 

Real  estate,      -     - 1,310,000 

Notes  of  other  banks,        ) 

And  due  by  other  banks,  j  3,338,00 

Specie,    -     - 2,408,000 


$29,202,000 

It  will  be  easily  perceived,  1st,  that  what  is  called  the  surplus, 
ahd  sometimes  the  reserved  or  contingent  fund,  is  nothing  more 
than  that  which  balances  the  account,  or  the  difference  betweea 
the  debits  and  credits  of  the  banks ;  and  that,  in  order  to  be 
enabled  to  repay,  at  the  expiration  of  the  charter,  to  the  stock- 
holders, the  full  amount  of  their  stock*  that  fund  or  difference 
ought,  in  every  sound  bank,  to  be  sufficient  to  cover  all  the  baa1, 
debts,  and  all  the  losses,  which  may  be  incurred  on  the  sale  of 
the  various  stocks  held  by  it,  and  of  its  real  estate :  2dly,  that 
the  deposits  may  at  any  time  be  converted  into  bank  notes,  and 
that  both  ought,  in  correct  language,  to  be  included  under  the 
denomination  of  circulation ;  3dly,  that  the  notes  of  other 
banks  on  hand,  form  no  part  of  the  circulation,  and  ought,  when 
considering  the  banking  system  as  a  whole,  to  be  deducted  from 
the  amount  of  the  notes  in  circulation;  and  that,  for  the  same 
reason,  inasmuch  as  the  balances  due  to  other  banks  by  the 
several  banks,  are  included  in  the  deposits,  the  balances  due  by 
such  other  banks  ought  also  to  be  deducted  from  that  item, 
which  Would  reduce  the  aggregate  of  those  two  items,  in  the 
preceding  statement,  from  16,028,000  to  12,690,000  dollars: 
4thly,  that  the  capital  is  the  only  item  in  the  account  apparent- 
ly invariable,  though  it  may  occasionally  be  increased  by  legis- 
lative permission,  and  lessened  by  purchases  of  their  own  stock 

*  Deducting  so  much  of  their  own  stock  as  has  been  purchased  by  the  banks. 
For  want  of  materials,  a  similar  deduction  has  not  been  made  in  the  subsequent 
statements. 

t  The  public  stocks  aro  not  distinguished  from  others  in  the  statement  of  the 
Hank  of  Pennsylvania.  Those  held  by  the  other  banks  amount  to  $1,588,000. 


42  BANKS  AND  CURRENCY. 

by  the  banks ;  and  that  all  the  other  items  are  variable,  and  do 
vary  according  to  the  operations  of  the  banks :  Sthly,  that  sup- 
posing the  second  and  third  items  of  credits  to  remain  the  same, 
the  circulation,  or  aggregate  of  deposits  and  notes  in  circula- 
tion, cannot  be  either  increased  or  decreased,  without  a  corre- 
sponding decrease  or  increase,  either  of  the  bills  discounted,  or 
of  the  specie,  or  of  both ;  Gthly,  that  by  limiting  by  law  the 
amount  of  the  debts  due  to  the  banks,  as  included  in  the  two 
first  items  of  the  credits,  to  a  sum  bearing  a  certain  ratio  to  the 
capital,  and  by  likewise  limiting,  in  a  similar  manner,  the  gross 
amount  of  the  notes  in  circulation,  both  which  limitations  are 
always  under  the  control  of  the  banks,  excessive  issues  may 
be  prevented:  7thly,  that  if  the  situation  of  the  banks  of 
Pennsylvania  in  the  aggregate  be  taken  as  a  proper  basis  for 
those  limitations,  the  whole  amount  of  debts  due  to  a  bank 
ought  not  to  exceed  twice,  nor  the  gross  amount  of  its  notes  in 
circulation,  two-thirds  of  the  amount  of  its  capital.  But  it 
must  not  be  forgotten,  that,  although  those  limitations  would  be 
useful  in  checking  the  amount  of  loans  and  issues,  the  ultimate 
solvency  of  a  bank  always  depends  on  the  solidity  of  the  paper 
it  discounts. 

The  capital  of  the  state  banks  existing  in  the  year  1790, 
amounted  to  about  2,000,000  of  dollars.  The  former  bank 
of  the  United  States  was  chartered  in  1791,  with  a  capital  of 
10,000,000.  The  charter  was  not  renewed;  but  in  January, 

1811,  immediately  before   its  expiration,   there  were  in  the 
United   States   eighty-eight    state    banks,   with  a    capital   of 
42,610,000  dollars,  making  then,  together  with  that  of  the  na- 
tional bank,  a  banking  capital  of  near  53,000,000.     In  June, 

1812,  war  was  declared  against  England ;  and  in  August  and 
September,  1814,  all  the  banks  south  and  west  of  New-Eng- 
land suspended  their  specie  payments. 

It  has  always  been  found  difficult  to  ascertain  with  precision 
the  causes  which,  in  each  special  case,  produce  an  extraordinary 
drain  of  specie,  and  compel  a  bank  to  suspend  its  payments. 
Although  it  clearly  appears  that  very  large  and  unforeseen  ad- 
vances to  government  were  the  immediate  cause  of  the  suspen- 
sion of  the  payments  of  the  Bank  of  England  in  the  year  1797, 
it  would  seem,  at  this  distance  of  time,  to  have  been  easy  to 
prevent  that  occurrence.  The  bills  of  exchange  from  abroad  on 
government,  or  any  other  floating  debt,  for  the  payment  of  which 
the  bank  was  required  to  make  those  advances,  might  with  fa- 
cility have  been  converted  into  funded  debt.  And  when  we 
find,  that,  in  less  than  seven  months  after  the  suspension,  the 
bank  declared,  by  a  solemn  resolution,  that  it  was  enabled  to 
issue  specie,  and  could  with  safety  resume  its  accustomed  func- 
tions, if  the  political  circumstances  of  the  country  did  not  ren- 
der it  inexpedient,  it  is  hardly  possible  to  doubt  that  the  sus- 


BANKS  AND  CURRENCY.  43 

pension,  in  its  origin,  as  well  as  in  its  continuance,  was  a  volun- 
tary act  on  the  part  of  government.  Opinions  are  however  di- 
vided to  this  day  on  that  subject ;  and  some  distinguished  Eng- 
lish writers  ascribe  that  event  to  some  unaccountable  panic. 
There  can  be  no  doubt,  that  there  was  a  great  and  continued 
run  on  the  bank  for  specie  prior  to  the  suspension ;  and  what 
renders  the  transaction  still  more  inexplicable,  is,  that,  almost 
immediately,  and  during  some  years  after  the  suspension  had 
actually  taken  place,  the  bank  notes,  though  no  longer  converti- 
ble into  specie,  were  at  par.  The  question  is  not  free  of  diffi- 
culty as  respects  the  similar  event  in  the  United  States. 

The  following  reasons  were  assigned  by  the  directors  of  the 
chartered  banks  of  Philadelphia,  in  an  address  to  their  fellow- 
citizens,  dated  the  30th  of  August,  181& 

"  From  the  moment  when  the  rigorous  blockade  of  the  ports  of  the  United 
States  prevented  the  exportation  of  our  produce,  foreign  supplies  could  be  paid 
for  in  specie  only,  and  as  the  importation  of  foreign  goods  in  the  Eastern  States 
has  been  very  large,  it  has  for  many  months  past  occasioned  a  continual  drain 
from  the  banks.  This  drain  has  been  much  increased  by  a  trade  in  British  Gov- 
ernment Bills  of  Exchange,  which  has  been  extensively  carried  on,  and  has 
caused  very  large  sums  to  be  exported  from  the  United  States. 

"  To  meet  this  great  demand  for  specie,  the  course  of  trade  did,  for  a  considera- 
ble time,  enable  us  to  draw  large  supplies  from  the  Southern  States — but  the  un- 
happy situation  of  affairs  there,  having  deprived  us  of  that  resource,  and  circum- 
stances having  occurred,  which  have  in  a  considerable  degree  occasioned  alarm 
and  distrust,  it  became  a  serious  consideration,  whether  the  banks  should  con- 
tinue their  exertions  to  draw  within  their  vaults  the  specie  capital  of  the  country, 
and  thus  facilitate  the  means  of  exporting  it  from  the  United  States, — or  whether 
they  should  suspend  the  payment  of  specie,  before  their  means  were  exhausted." 

The  great  drain  from  the  east,  alluded  to  by  the  Philadelphia 
banks,  is  proved  by  the  comparative  view  of  the  specie  in  the 
vaults  of  the  banks  of  Massachusetts,  in  June  1814,  immediately 
before  the  suspension  of  payments,  and  on  the  same  days  of  the 
preceding  and  succeeding  years. — 

This  amounted  on  the  1st  of  June  1811        to       $1,709,000 
«  "  "     1812         "         3,915,000 

"  "  "     1813         "         6,171,000 

"     1814         "          7,326,000 
"  "  "     1815         "          3,915,000 

"  "  "     1816         "          1,270,000 

And  the  fact,  that  a  large  amount  of  British  government  bills 
was  sent  to  this  country  from  Canada  in  the  years  1812 — 1814, 
and  sold  at  20  and  22  per  cent,  discount,  is  corroborated  by  au- 
thentic information  from  several  quarters.  Other  causes,  how- 
ever, concurred  in  producing  the  suspension  of  specie  payments. 
1.  The  circulating  capital  of  the*  United  States,  which  must 
supply  the  loans  required  in  time  of  war,  is  concentrated  in  the  / 
large  cities,  and  principally  north  of  the  Potomac.  The  war 
was  unpopular  in  the  Eastern  States;  they  contributed  less  than 
from  their  wealth  might  have  been  anticipated ;  and  the  bur- 
then fell  on  the  Middle  States.  The  proceeds  of  loans,  (exclu- 


I 


44  BANKS  AND  CURRENCY. 

sively  of  Treasury  notes,  and  temporary  loans,)  paid  into  the 
Treasury  from  the  commencement  of  the  war  to  the  end  of  the 
year  1814,  amounted  to  forty -one  millions  ten  thousand  dollars. — 
Of  that  sum  the  Eastern  States  lent,  -  -  $2,900,000 

New- York,  Pennsylvania,  Maryland,  and  the  ) 

T\'  A   •    i     /•  /S  i        i  •  i 

District  of  Columbia,  ( 

The  Southern  and  Western  States,-  -    -    -    -      2,320,000 

The  floating  debt,  consisting  of  outstanding  Treasury  notes  and 
temporary  loans  unpaid,  amounted,  on  the  1st  of  January  1815, 
to  eleven  millions  two  hundred  and  fifty  thousand  dollars,  about 
four-fifths  of  which  were  also  due  to  the  Middle  States.  Almost 
the  whole  of  the  large  amount,  advanced  to  government  in  tl 
States,  was  loaned  by  the  cities  of  New- York,  Philadelphia,  an< 
Baltimore,  and  by  the  District.  The  banks  made  advances  be- 
yond their  resources,  either  by  their  own  subscriptions  or  by 
enlarging  their  discounts  in  favor  of  the  subscribers.  They,  as 
well  as  several  wealthy  and  patriotic  citizens,  displayed  great 
zeal  in  sustaining  government  at  a  critical  moment ;  and  the 
banks  were  for  that  purpose  compelled  to  enlarge  their  issues. 

2.  The  dissolution  of  the  Bank  of  the  United  States  deprived 
the  country  of  a  foreign  capital  of  more  than  seven  millions  of 
dollars,  vested  in  the  stock  of  that  institution,  and  which  was 
accordingly  remitted  abroad  during  the  year  that  preceded  the 
war.     At  the  same  time,  the  state  banks  had  taken  up  a  con- 
siderable part  of  the  paper  formerly  discounted  by  that  of  the 
United  States.    As  the  amount  of  this  exceeded  fifteen  millions, 
their  aid  in  that  respect  was  absolutely  necessary,  in  order  to 
prevent  the  great  distress,  which  must  have  otherwise  attended 
such  diminution  of  the  usual  accommodations. 

3.  The  creation  of  new  state  banks,  in  order  to  fill  the  chasm, 
was  a  natural  consequence  of  the  dissolution  of  the  Bank  of  the 
United  States.     And,  as  is  usual  under  such  circumstances,  the 
expectation  of  great  profits  gave  birth  to  a  much  greater  num- 
ber than  was  wanted.     They_were  extended -through  the  inte- 
rior parts  of  the  country,  created  no  new  capital,  and  withdrew 
that  which  might  have  been  otherwise  lent  to  government,  or 
as  profitably  employed.     From  the  1st  of  January  1811,  to  the 
1st  of  January  1815,  not  less  than  one  hundred  and  twenty  new 
banks  were  chartered  and  went  into  operation,  with  a  capital 
of  about  forty,  and  making  an  addition  of  near  thirty  millions  of 
dollars  to  the  banking  capital  of  the  country.     That  increase 
took  place  on  the  eve  of,  and  during  a  war  which  did  nearly 
annihilate  the  exports,  and  both  the  foreign  and  coasting  trade. 
And,  as  the  salutary  regulating  power  of  the  Bank  of  the  Uni- 
ted States  no  longer  existed,  the  issues  were  accordingly  in- 
creased much  beyond  what  the  other  circumstances  already 
mentioned  rendered  necessarv.     We  have  obtained  returns  of 


BANKS  AND  CURRENCY. 


45 


the  circulation  and  specie,  for  the  latter  end  of  the  years  1810, 
1814,  and  1815,  though  not  all  of  the  same  precise  date,  of  a 
sufficient  number  of  banks  to  enable  us  to  make  an  estimate  of 
the  whole,  which  cannot  vary  essentially  from  the  truth.  Our 
returns  of  the  amount  of  deposits  are  too  partial  for  insertion ; 
our  authentic  returns  embrace  generally  the  states  of  Massa- 
chusetts, New-Hampshire,  Rhode  Island,  Pennsylvania,  Mary- 
land, Virginia,  and  the  District  of  Columbia,  and  give  the  fol- 
lowing result : 


On  or  near  1st  Jan.  1811  —  50  State  Banks 
1815—120      " 
1816—134      " 

Capital 

Notes  in 
circulation 

Specie 

24,618,551 
45,272,076 

47,987,826 

13,170,401 
23,617,090 
31,702,050 

5,673,442 
11,505,077 
8,758,133 

Having  the  amount  of  the  capital  and  a  few  general  returns 
of  all  the  other  banks,  partly  guided  by  analogy,  and  partly 
by  their  respective  dividends,  we  annex  the  following  estimate 
of  the  whole : 


Capital 

Notes  in 
circulation 

Specie 

1st  Jan   1811     Bank  of  the  U  S 

10  000  000 

5  400  000 

5  800  000 

88  State  Banks,  

42,610,601 

22,700,000 

9,600,000 

Total 
1815     208  State  Banks 

52,610,601 
82  259  590 

28,100,000 

Af.  Knn  ooo 

15,400,000 

1816—246     "         "        

89  822  422 

68  000  000 

19  000  000 

Capital 
$15,690,000 


Circulation 
5,320,000 


Specie 
8,200,000 


26,000,000     13,750,000     3,000,000 
40,930,000     25,630,000     5,800,000 


The  unequal  distribution  of  the  specie  on  the  1st  of  January, 
1815,  must  be  recollected. 

At  that  time  the  banks  of  the  four 
states  of  Maine,  Massachusetts,  Rhode 
Island,  and  New-Hampshire,  had 

The  states  of  Pennsylvania  and  Mary- 
land, with  the  District  of  Columbia,  had 

And  all  the  other  states 

The  increase  of  issues,  from  forty-five  and  a  half  to  sixty- 
eight  millions,  or  of  about  50  per  cent,  within  the  first  fifteen 
months  of  the  suspension  of  specie  payments,  was  the  natural 
consequence  of  that  event.  We  must  observe,  that,  where  we 
were  obliged  to  resort  to  an  estimate,  the  amount  of  bank  notes 
is  set  down  rather  too  low  than  too  high.  Yet,  we  are  confident, 
that  for  the  three  dates  we  have  given,  the  actual  amount  can- 
not have  exceeded  thirty,  forty-seven,  and  seventy  millions  re- 
spectively. This  last  sum  falls  very  short  indeed  of  the  one 
hundred  and  ten  millions  which  were  supposed  to  have  been 
put  in  circulation  by  the  banks,  but  is  quite  sufficient  to  ac- 
count for  the  depreciation.  It  is  equal  to  the  present  amount 
of  the  currency ;  and  as  the  increase  of  wealth  during  the  last 
fourteen  years  has  at  least  been  in  the  same  proportion  as  that 
of  the  population,  the  amount  which  could  have  been  wanted 


40  BANKS  AND  CURRENCY. 

at  that  time  may  be  estimated  at  about  forty-six  millions,  in- 
cluding both  paper  and  specie.  It  is  therefore  clear  that  the 
equal  amount  in  bank  notes  alone,  which  had  been  put  in  cir- 
culation by  the  state  banks  before  the  year  1815,  were  more 
than  could  have  been  long  sustained,  preserving  at  the  same 
time  their  convertibility  into  specie.  Under  those  circumstances, 
the  alarm  caused  by  the  capture  of  Washington,  and  the  threat- 
ened attack  on  Baltimore,  was  sufficient  to  cause  a  suspension 
of  specie  payments.  It  took  place  at  that  particular  crisis,  and 
appears  to  have  originated  in  Baltimore.  The  example  was 
immediately  followed  in  Philadelphia  and  New-York  ;  and  it  is 
indeed  known,  that  an  attack  was  apprehended  on  both  those 
places,  and  that  some  of  the  banks  of  Philadelphia  had  sent 
their  specie  to  Lancaster. 

We  have  stated  all  the  immediate  and  remote  causes  within 
our  knowledge,  which  concurred  in  producing  that  event ;  and 
although  the  effects  of  a  longer  continuance  of  the  war  cannot 
be  conjectured,  it  is  our  deliberate  opinion,  that  the  suspension 
might  have  been  prevented,  at  the  time  when  it  took  place, 
had  the  former  Bank  of  the  United  States  been  still  in  exist- 
ence. The  exaggerated  increase  of  state  banks,  occasioned  by 
the  dissolution  of  that  institution,  would  not  have  occurred. 
That  bank  would,  as  before,  have  restrained  within  proper, 
bounds,  and  checked  their  issues :  and,  through  the  means  ofj 
its  offices,  it  would  have  been  in  possession  of  the  earliest  symp-f 
toms  of  the  approaching  danger.  It  would  have  put  the  Trea- 
sury Department  on  its  guard ;  both  acting  in  concert,  woulc 
certainly  have  been  able  at  least  to  retard  the  event ;  and,  as 
the  treaty  of  peace  was  ratified  within  less  than  six  months- 
i  after  the  suspension  took  place,  that  catastrophe  would  have! 
been  altogether  avoided. 

We  have  already  adverted  to  the  unequivocal  symptoms  of 
renewed  confidence  shown  by  the  rising  value  of  bank  notes, 
which  followed  the  peace.  This  would  have  greatly  facilitated 
an  immediate  resumption  of  specie  payments,  always  more  easy, 
and  attended  with  far  less  evils,  when  the  suspension  has  been 
of  short  duration.  The  banks  did  not  respond  to  that  appeal 
made  by  public  opinion ;  nor  is  there  any  evidence  of  any  pre- 
parations, or  disposition  on  their  part,  to  pay  their  notes  in 
specie,  until  after  the  act  to  incorporate  the  new  Bank  of  the 
United  States  had  passed.  IWe  are  inclined  to  ascribe  this  prin- 
cipally to  the  great  difficulty  of  bringing  the  various  banks,  in 
our  several  commercial  cities,  to  that  concert  which  was  indis- 
pensable.! But  it  cannot  be  concealed,  that,  in  such  a  situation, 
the  immediate  and  apparent  interest  of  the  banks  is  in  opposi- 
tion to  that  of  the  public.  It  is  well  known,  that  the  Bank  of 
England,  though  apparently  disposed  at  first  to  resume  its  specie 
payments,  found  a  continued  suspension  extremely  convenient 


BANKS  AND  CURRENCY.  47 

and  profitable ;  that  during  that  period  of  twenty  years,  its  ex- 
traordinary profits,  besides  raising  the  usual  dividend  from  7  to 
10  per  cent,  amounted  to  thirteen  millions  of  pounds  sterling, 
and  that  it  accordingly  threw  obstacles  in  the  way  of  the  re- 
sumption. The  state  banks  of  the  United  States  were  only  in- 
active in  that  respect,  and  did  not  impede  that  desirable  event: 
but  they  used  the  advantages  incident  to  the  situation  in  which 
they  were  placed ;  and  to  what  extent  their  issues  were  gene- 
rally increased,  has  already  been  shown. 

It  will  not  be  asserted,  that  any  reasonable  expectation  could 
have  been  entertained  of  a  voluntary  return  on  the  part  of  the 
state  banks  to  a  sound  currency,  unless  the  depreciation  had 
become  so  great  as  to  induce  the  community  at  large  to  reject 
their  notes.  Whether  this  arose  from  inability  or  unwillingness, 
a  remedy  was  equally  necessary.  Congress  does  not  appear  to 
have  inquired  whether  they  had  the  right  to  exercise  any  im- 
mediate control  over  the  issues  of  those  banks ;  and  the  question 
seems  to  have  laid  between  the  establishment  of  a  national 
bank,  and  an  attempt  to  force  the  state  banks  to  pay  in  specie, 
by  the  refusal  of  their  notes  in  payment  of  debts  and  duties  due 
to  the  United  States,  so  long  as  those  notes  were  not  on  demand 
discharged  in  specie.  It  is  clear  that  such  an  attempt  must  have 
failed  altogether,  during  the  year  that  followed  the  peace,  and 
so  long  as  the  expenses  of  government  greatly  exceeded  its 
receipts.  The  bank  was  chartered  in  April,  1816,  and  it  must 
for  ever  remain  conjectural,  whether,  if  that  measure  had  not 
been  adopted,  and  after  the  floating  debt,  and  all  the  arrearages 
of  the  war  had  been  paid  or  funded,  and  the  receipts  of  the  trea- 
sury had  become  greater  than  its  disbursements,  an  attempt,  on 
the  part  of  the  government,  to  collect  the  revenue,  and  to  dis- 
charge the  public  expenses  in  specie,  would  have  compelled  the 
state  banks  to  resume  generally  specie  payments.  It  cannot,  at 
all  events,  be  doubted,  that  the  result  was  quite  uncertain,  and 
that  the  attempt  might  have  failed  at  the  very  outset,  from  the 
want  of  any  other  currency  than  bank  notes.  It  is  indeed  quite 
probable,  that,  in  that  case,  the  impossibility  to  collect  the  re- 
venue, might  have  induced  government  merely  to  substitute  an 
issue  of  its  own  paper  to  that  of  the  banks. 

It  will  be  found,  by  reference  to  the  Report  of  the  Secretary 
of  the  Treasury  of  December  1815,  that  his  recommendation  to 
establish  a  National  Bank  was,  in  express  terms,  called  "  a  propo- 
sition relating  to  the  national  circulating  medium,"  and  was 
exclusively  founded  on  the  necessity  of  restoring  specie  pay- 
ments and  the  national  currency.  He  states  it  as  a  fact  incon- 
testably  proved,  that  the  state  banks  could  not  at  that  time  be 
successfully  employed  to  furnish  an  uniform  national  currency. 
He  mentions  the  failure  of  one  attempt  to  associate  them  with 
that  view ;  that  another  attempt,  by  their  agency  in  circulating 


48  BANKS  AND  CURRENCY. 

Treasury  notes,  to  overcome  the  inequalities  of  the  exchange, 
has  only  been  partially  successful ;  that  a  plan  recently  pro- 
posed, with  the  design  to  curtail  the  issues  of  bank  notes,  to  fix 
the  public  confidence  in  the  administration  of  the  affairs  of  the 
banks,  and  to  give  to  each  bank  a  legitimate  share  in  the  circu- 
lation, is  not  likely  to  receive  the  general  sanction  of  the  banks ; 
and  that  a  recurrence  to  the  national  authority  is  indispensable 
for  the  restoration  of  a  national  currency.  Such  was  the  con- 
temporaneous and  deliberate  opinion  of  the  Officer  of  the  Gov- 
ernment, who  had  to  struggle  against  the  difficulties  of  a  paper 
currency,  not  only  depreciated,  but  varying  in  value  from  day 
to  day  and  from  place  to  place. 

*It  was  not  till  after  the  organization  of  the  Bank  of  the 
United  States,  in  the  latter  part  of  January  1817,  that  delegates 
from  the  banks  of  New- York,  Philadelphia,  Baltimore,  and  Vir- 
ginia, assembled  in  Philadelphia,  for  the  purpose  of  agreeing  to 
a  general  and  simultaneous  resumption  of  specie  payments.  A 
compact  proposed  by  the  Bank  of  the  United  States,  acceded  to 
by  the  state  banks,  and  ratified  by  the  Secretary  of  the  Treasu- 
ry, was  the  result  of  that  convention.  The  state  banks  engaged 
to  commence  and  continue  specie  payments,  on  various  condi- 
tions, relative  to  the  transfer  and  payment  of  the  public  balances 
on  their  books  to  the  bank  of  the  United  States,  and  to  the  sum 
which  it  engaged  previously  to  discount  for  individuals,  or  under 
certain  contingencies  for  the  said  banks,  and  also  with  the  ex- 
press stipulation,  that  the  Bank  of  the  United  States,  upon  any 
emergency  which  might  menace  the  credit  of  any  of  the  said 
banks,  would  contribute  its  resources  to  any  reasonable  extent 
in  support  thereof,  confiding  in  the  justice  and  discretion  of  the 
banks  respectively,  to  circumscribe  their  affairs  within  the  just 
limits  indicated  by  their  respective  capitals,  as  soon  as  the  inter- 
est and  convenience  of  the  community  would  admit.  To  that 
compact,  which  was  carried  into  complete  effect,  and  to  the  im- 
portation of  more  than  seven  millions  of  dollars  in  specie  from 
abroad  by  the  Bank  of  the  United  States,  the  community  is  in- 
debted for  the  universal  restoration  of  specie  payments,  and  for 
their  having  been  sustained,  during  the  period  of  great  difficulty 
and  of  unexampled  exportation  of  specie  to  China,  which  im- 
mediately ensued. 

Among  the  difficulties  which  the  bank  had  to  encounter,  must 
be  reckoned  the  effort  made  to  alleviate  the  distress  which 
always  attends  the  return  from  a  depreciated,  to  a  sound  cur- 
rency. The  Western  States  having  less  capital,  are,  in  the  course 
of  trade,  generally  indebted  to  the  Atlantic  seaports.  Whether 
owing  to  larger  purchases  of  public  land  than  usual,  to  an  ex- 

*  The  following  details  are   borrowed   from  the   pamphlet    signed    "Monitor," 
which  is  well  known  to  have  come  from  an  authentic  source. 


BANKS  AND  CURRENCY. 


49" 


cited  spirit  of  enterprise,  or  to  any  other  cause,  it  appears,  that 
at  that  time,  the  amount  of  debts  due  by  the  West,  either  to  the 
East  or  to  Government,  was  unusually  large.  The  several  west- 
ern offices  of  the  Bank  of  the  United  States  discounted  largely, 
probably  to  too  great  an  extent.  The  eastern  creditors  were 
generally  paid,  the  western  state  banks  relieved,  and  the  debt 
transferred  to  the  Bank.  Thus  we  find  that  the  issues  of  the  Bank 
of  Kentucky,  which,  in  1816,  exceeded  one  million  nine  hundred 
and  fifty  thousand  dollars,  were,  in  1819,  reduced  to  six  hundred 
and  seventy  thousand  dollars.  This  could  not  be  done,  without 
large  issues  of  branch  notes,  or  of  drafts  on  the  Parent  Bank 
and  the  northern  offices  which  drained  these  of  their  capital.* 
Although  great  curtailments  had  taken  place,  near  six  millions 
and  a  half  of  dollars  of  the  capital  of  the  bank  were,  in  the 
spring  of  the  year  1819,  distributed  amongst  the  interior  western 
offices^  whilst  the  whole  amount  allotted  to  the  offices  north  and 
east  of  Philadelphia,  was  less  than  one  million.  The  proper 
equilibrium  could  not  be  reinstated  without  a  revulsion  and  an 
uncommon  pressure  on  the  west*  in  order  to  lessen  the  amount 
of  its  debt.  The  attempts  to  counteract  that  effect  by  the  cre- 
ation of  a  great  number  of  local  banks,  could  not  but  fail,  and 
must  have  aggravated  instead  of  relieving  the  evil.  The  unpopu- 
larity which  attached  to  the  Bank  of  the  United  States,  when 
it  found  itself  compelled  to  enforce  the  payment  of  such  a  large 
debt,  and  the  attempt  to  alleviate  the  distress  by  relief  laws, 
which,  though  injudicious,  ought  not,  in  that  state  of  things,  to 
be  too  severely  judged,  are  well  known,  and  were  the  natural 
consequences  of  the  course  which  had  been  originally  pursued. 
The  year  1819  having  been  one  of  great  difficulty,  we  annex 
an  estimate  of  the  situation  of  the  banks  for  the  latter  end  of  it. 
The  Secretary  of  the  Treasury  gave  a  partial  one,  in  his  report 
oh  currency  of  the  year  1820,  to  which  we  have  made  some 
additions  and  corrections  from  bank  returns  of  a  nearer  date  to 
the  1st  of  January  1820,  than  he  had  then  obtained.  The  por- 
tion, on  estimate,  embraces  almost  the  whole  of  the  banks  of 
Connecticut,  New  Jersey,  New  York,  and  Maryland,  Mr.  S. 
Girard's,  about  one-half  of  those  of  South  Carolina,  Louisiana, 
and  Alabama,  and  one-fourth  of  those  of  Kentucky.  The  re- 
turns of  those  of  the  other  states  are  complete. 


1st  January,  1820. 

212  ascertained  State  Banks 
95  estimated         "         " 
307"  State  Banks  
United  States  Bank  •  -  - 
,      Tojal 

Capital 

Notes  in 
circulation 

Deposits 

Specie 

62,735,842 
39,374,769 

26,641,574 
14,000,000 

19,444,959 
11,800,000 

10,672,263 
6,000,000 

102,110,611 
35,000,000 

40,641,574 
4,221,770 

31,244,959 
4,705,511 

16,672,263 
3,147,977 

137,110,611 

44,863,344 

35,950,470 

19,820,240 

*  Mr.  Cheves's  Exposition. 
G 


50  BANKS  AND  CURRENCY. 

It  appears  from  that  statement,  that  the  amount  of  notes  in 
circulation  was  only  about  one  million  less  than  immediately 
before  the  suspension  of  specie  payments,  whilst  on,  the  other 
hand,  the  amount  of  specie  in  the  vaults  of  the  banks  was  nearly 
two  millions  greater.  But  it  has  been  seen,  that,  on  the  1st  of 
January  1816,  the  paper  currency  amounted  to  sixty-eight 
millions.  So  great  a  reduction  in  the  issues  of  the  banks,  could 
not  have  been  effected  without  a  corresponding  diminution  of 
their  discounts.  Debts  contracted  during  the  suspension  of  s 
cie  payments,  and  whilst  the  currency  was  depreciated,  becam 
payable  at  par.  The  distress,  therefore,  that  took  place  at  tha 
time,  may  be  clearly  traced  to  the  excessive  number  of  state 
banks  incorporated  subsequently  to  the  dissolution  of  the  fir 
Bank  of  the  United  States,  and  to  their  improvident  issues. 
Those  of  the  country  banks  of  Pennsylvania  alone,  amounted, 
in  November  1816,  to  84,756,460,  and  had  been  reduced  in 
November  1819,  to  $1,318,976.  A  committee  of  the  Senate  of 
that  state,  appointed  in  December  1819,  to  inquire  into  the 
extent  and  causes  of  the  present  general  distress,  ascribe  it,  as 
we  do,  to  the  improvident  creation  of  so  many  banks,  as  will 
appear  from  the  following  extract  from  their  report : — 

"  At  the  following  session,  the  subject  was  renewed  with  increased  ardor,  and 
a  bill  authorizing  the  incorporation  of  forty-one  banking  institutions,  with  capitals 
amounting  to  upwards  of  seventeen  millions  of  dollars,  was  passed  by  a  large  ma- 
jority. This  bill  was  also  returned  by  the  governor,  with  additional  objections ; 
but  two-thirds  of  both  houses  (many  members  of  which  were  pledged  to  their 
constituents  to  that  effect)  agreeing  on  its  passage,  it  became  a  law  on  the  21st 
of  March  1814,  and  thus  was  inflicted  upon  the  commonwealth  an  evil  of  a  more 
disastrous  nature  than  has  ever  been  experienced  by  its  citizens.  Under  this  law, 
thirty-seven  banks,  four  of  which  were  established  in  Philadelphia,  actually  went 
into  operation." 

The  numerous  failures  which  had  preceded  the  year  1819,  or 
have  since  taken  place,  have  also  been  principally  due  to  the 
same  causes.  We  have  an  account  of  165  banks  that  failed 
between  the  1st  of  January  1811  and  the  1st  of  July  1830.  The 
capital  of  129  of  these  amounted  to  more  than  twenty-four  mil- 
lions of  dollars  stated  as  having  been  paid  in.  The  whole 
amount  may  be  estimated  at  near  thirty  millions ;  and  our  list 
may  not  be  complete.  The  capital  of  the  state  banks  now  ex- 
isting amounts  to  about  110  millions.  On  a  total  capital  of  one 
hundred  and  forty  millions,  the  failures  have  amounted  to  thirty, 
or  to  more  than  one-fifth  of  the  whole.  Of  the  actual  loss  in- 
curred, we  can  give  no  account.  There  are  instances  in  which 
the  stockholders,  by  paying  for  their  shares  in  their  own  notes, 
and  afterwards  redeeming  their  notes  with  the  stock  in  their 
name,  suffered  no  loss ;  and  this  fell  exclusively  on  the  holders 
of  bank-notes  and  depositors.  In  many  cases,  where  the  whole 
stock  has  been  lost,  the  holders  of  notes  have  nevertheless  ex- 
perienced a  partial  loss.  In  the  most  favorable  cas*es,  the  stock- 
holders lost  a  considerable  portion  of  their  stock :  and  all  the 


BANKS  AND  CURRENCY.  51 

debts  will  be  ultimately  paid.  But  even  then  there  has  been 
a  heavy  loss  on  the  community ;  the  notes  having  been  gene- 
rally sold  by  the  holders  at  a  depreciated  rate,  at  the  time  when 
the  failure  took  place.  We  believe  that  the  pecuniary  loss  sus.- 
tained  by  the  government,  on  the  loans  raised  during  the  sus- 
pension, and  from  bank  failures,  exceeded  four  millions  of  dollars. 
The  active  industry  of  the  country  has  enabled  it  to  recover 
from  that  depressed  state ;  and  we  will  now  give  a  view  of  the 
situation  of  the  state  banks  and  of  that  of  the  United  States, 
at  the  close  of  the  year  1829.  We  have  returns  of  two  hun- 
dred and  eighty-one  state  blanks,  which  have  a  capital  of 
95,003,557  dollars.  Of  the  forty-eight  other  banks  we  have 
only  the  capital,  amounting  to  15,188,711  dollars,  and  some 
incomplete  returns ;  and  of  thirty  banks  of  the  state  of  New- 
York,  of  which  we  have  complete  returns,  fourteen  only  are 
for  the  1st  of  January  1830,  the  sixteen  others  being  for  the 
1st  of  January,  1828.  This  last  circumstance  makes  the 
amount  of  specie  appear  probably  one  million  of  dollars  less 
than  it  actually  was  at  the  end  of  'the  year  1829.  The  forty- 
eight  banks,  of  the  situation  of  which  we  have  no  return,  are 
distributed  as  follows,  viz. 

In  Connecticut, - 3 

New- York, -       7 

New-Jersey, .......13 

Pennsylvania,*       ....-..-.-.       1 

Delaware, 1 

Maryland, 4 

South  Carolina, 4 

Louisiana,     -     -     -    {branches  of) 1 

Alabama,     --.- 1 

Ohio, (all)     ......     11 

Michigan  and  Florida,      - 2 

Estimating  these  in  the  same  manner  as  in  the  preceding 
statements,  we  have  the  following  results : 

1.  For  the  states  of  Maine,  New-Hampshire,  Vermont,  Mas- 
sachusetts, and  Rhode-Island, 

Capital, $30,812,692 

Notes, 7,394,566 

Deposits, 4,203,895 

Specie,     -« 2,194,768 

For  the  states  of  Connecticut,  New-York,  and  New-Jersey, 

Capital, -     26,585,539 

Notes, 12,737,539 

Deposits, r     -     -     14,594,145 

Specie,     -     -     - 2,841,746 

*  Mr.  Girard's  bank,  the  capital  of  which  is  rated  at  $1,800,000,  being  the  sum  on 
which  the  stamp  duty  was  formerly  paid. 


5$  BANKS  AND  CURRENCY. 

For  the  states  of  Pennsylvania,  Delaware,  Maryland,  and 
the  District  of  Columbia, 

Capital,       -     -     - -     ,     -  $25,566,622 

Notes,    -     -          .........  11,274,086 

Deposits, -  10,850,739 

Specie, 4,170,592 

For  the  four  Southern  States, 

Capital, $17,600,129 

Notes, 12,183,863 

Deposits, 6,952,194 

Specie,  -     -     - 3,046,141 

For  the  Western  States,* 

Capital, 9,629,286 

Notes, 4,684,860 

Deposits, 4,180,146 

Specie,        2,686,396 

II.  Distinguishing  the  cities  of  Boston,  Salem,  New- York, 
Philadelphia,  Baltimore,  Charleston,  and  New-Orleans,  from 
ihe  rest. 

Remainder 
Seven  cities.  of  the  United  States. 

Capital,      ....  $.53,211,605  -  -  -  56,980,663 

Notes,   .....  17,144,422  -  -  -  31,130,492 

Deposits,     ....  23,137,129  -  -  r  17,643,990 

Specie,       ....  7,258,025  -  -  -  7,681,618 

III.  Situation  of  the  Bank  of  the  United  States,  on  the  1st 
of  November,  1829. — 

Cr.  Dr. 

Funded  debt $11,717,071      Capital, $34,996,270 

Notes  discount-  Notes  in  circulation,    -    -     13,048,984 

ed,  -    -    -    $32,541,124  Deposits, 14,778,809 

Domestic  bills,      7,476,321  Balance  in  transitu  from 

40,017,445  bank  and  offices  on  each 

Foreign  account,      -    -    -     1,161,001  other,    ......         732,062 

Due  from  banks,      843,551  Surplus  fund,  after  deduct 

Notes  of  ditto,       1,531,528  ing  losses  already  char ge- 

2,375,079  able  to  it,  including  that 

Specie, 7,175,274  oT  Baltimore,   ....    2,766,129 

Real  estate, 3,876,404  '• — 

66,322,274 

66,322,274 


IV.  The  progressive  improvement  of  the  Bank  of  the  United 
States,  and  the  talent  with  which  it  has  been  administered, 
are  exhibited  in  the  following  comparative  view  of  the  princi- 
pal items  of  its  situation,  on  the  first  days  of  November,  1819 
and  1880:— 


*  There  arc  not  now  any  slate  bank*  in  operation  in  the  states  of  Kentucky,  In- 
diana, Illinois,  and  Missouri. 


BANKS  AND  CURRENCY.  53 

November  1.                                     1819.  1830. 

$otes  discounted  on  Bank  Stock,     -     $7,759,980  719,195 

Notes  discounted  on  personal  security,  21,423,622  32,665,035 

Domestic  Bills,     -----.--      1,386,174  7,954,290 

Deposits, -     -     -      4,705,512  12,650,752 

Specie, 3,147,977  11,436,175 

Due  to  Baring,  Brothers  &  Co.    -     -      2,333,937 

Due  from             ditto, 2,778,653 

Bank  notes  issued, 4,221,770  18,004,680 

deduct  in  transitu,      ....         411,059  2,823,135 


In  actual  circulation, 


-     -    $3,810,111       15,181,545 


V.  The  following  estimate  gives  the  general  result  for  the 
end  of  -the  year  1829 — 


/ 
281  Banks  ascertained, 

Capital 

Notes 

Deposits 

Specie 

95,003,557 
15,188,711 

39,174,914 
9,100,000 

32,531,119 
8,250,000 

11,989,643 
2,950,000 

329*     

United  States  Bank  .  .  . 

110,192,268 
35,000,000 

48,274,914 
;13;048,984 

40,781,119 
14,778,809 

14,939,643 
7,175,274 

145,192,268  |  -61,323,898 

55,559,928 

22,114,917 

It  will  be  perceived,  by  the  last  item  of  No.  IV.,  that  there 
is  always  a  large  amount  of  the  notes  of  the  Bank  of  the  United 
States,  issued  and  inserted  in  the  usual  returns,  which  are  not 
in  actual  -circulation.  They  consist  of  notes  received  in  pay- 
ment of  duties,  or  otherwise,  by  other  offices  than  those  by  which 
they  had  been  issued,  and  transmitted  back  to  them.  The 
amount,  at  the  end  of  1829,  in  No.  IV.,  is  that  of  the  nett  circu- 
lation. On  the  other  hand,  the  drafts  from  the  bank  on  offices, 
and  from  these  on  the  bank  ajid  on  each  other  in  actual  circu- 
lation, should,  as  has  been  observed,  be  considered  as  making 
part  of  it.  The  total  annual  amount  of  those  drafts  is  about 
twenty-four  millions  of  dollars,  and  they  are  on  an  average  paid 
within  fifteen  days  after  being  issued.  The  amount  always  in 
circulation  may  therefore  be  estimated  at  one  million,  which, 
added  to  the  thirteen  millions  of  bank  notes,  gives  fourteen  mil- 
lions for  the  actual  circulation  of  the  bank.  We  may  therefore 
estimate  the  total  amount  of  the  paper  currency  of  the  United 
States,  on  the  1st  of  January,  1830,  at  aboufe^sbtty-two  millions 
and  a  half  "  -* . 

ATltheTbanks  receive  notes  issued  by  the  other  institutions, 
the  returns  of  which,  that  have  been  obtained,  being  incom- 
plete, have  not  been  inserted  in  the  preceding  statements.  From 
an  examination  of  a  number  of  these,  in  various  sections  of  the 


*  We  have  not  included  in  this  amount  several  banks  lately  chartered,  hut  not  in 
operation  on  the  1st  of  January,  1830. 


54  BANKS  AND  CURRENCY. 

country,  and  embracing  banks  with  an  aggregate  capital  of 
more  than  twenty  millions  of  dollars,  we  think  that  the  notes 
of  that  description  make  more  than  one-fifth  of  the  total  amount 
of  their  issues,  in  those  situated  north  of  the  Potomac,  and  about 
one-eighth  in  the  Southern  States.  The  average  of  notes  of 
state  banks  on  hand,  in  the  Bank  of  the  United  States  and  its 
offices,  amounted,  during  the  year  1829,  to  about  one  million 
and  a  half.  There  is,  therefore,  always  a  sum  of  about  nine  ot 
ten  millions  of  dollars,  or  not  less  than  one-seventh  part  of  the 
whole  amount  issued,  which  is  not  in  actual  circulation.  If  the 
banks  did  not  receive  any  notes  but  their  own,  it  would  seem 
that  a  nearly  equal  amount  of  these  would  be  returned  upon 
them,  and  that  the  real  amount  of  those  in  actual  circulation 
should  not  be  estimated  at  more  than  fifty-three  and  a  half  mi 
lions  of  dollars.  We  have  however  adopted  throughout  the 
usual  mode  of  computation. 

If  to  the  amount  of  notes  we  add  the  deposits,  we  will  have 
a  total  of  either  one  hundred  and  eighteen,  or  one  hundred  and 
nine  millions,  according  to  each  of  those  two  modes  of  compu- 
ting, for  the  circulation  of  all  the  banks.  This  is  sustained  by 
a  sum  of  twenty-two  millions  in  specie,  which  makes  no  part  of 
the  circulation.  There  are  no  means  of  ascertaining  correctly 
the  portion  which  consists  of  the  precious  metals.  The  silver 
coinage  of  England  forms  nearly  one-seventh  part  of  the  whole 
circulation  of  that  country.  At  that  rate,  that  of  the  United 
States,  allowing  for  the  various  considerations  which  may  affect 
the  question,  cannot  be  estimated  at  more  than  ten  millions.  It 
is  well  known,  that  gold  has  been  altogether  excluded  by  the 
mint  regulations. 

We  have  therefore  the  following  results,  according  to  the 
.view  of  the  subject,  which  may  be  adopted : 

Gross  amount  of  notes  issued,       -     ...     -     $62,500,000 
Silver  coins, -     -       10,000,000 

Usual  mode  of  computing,         1,      ....      72,500,000 
And  if  deposits  are  included,        -     -     -     -     -      55,500,000 

2,  ....     128,000,000 

But  if  the  bank  notes  of  other  banks  on  hand  are 

deducted,  the  notes  in  circulation  will  be     -    $53,500,000 
Silver,        10,000,000 

3,  ....       63,500,000 
And  if  deposits  are  included, 55,500,000 

4,  ....     119,000,000 

Which  last  appears  to  us  the  most  correct  mode  of  compu- 
tation. 


BANKS  AND  CURRENCY.  55 

Although  we  have  freely  expressed  our  opinion,  that,  taking 
into  consideration  all  the  circumstances  which  belong  to  the  sub- 
ject, it  might  have  been  preferable  in  the  United  States  to  have 
had  nothing  but  a  metallic  currency,  we  are  quite  aware  that 
this  is  not  at  this  time  the  question.  We  are  only  to  inquire, 
whether  any  other  or  better  security  can  be  found,  than  that 
which  is  afforded  by  the  Bank  of  the  United  States,  against 
either  the  partial  failures  of  banks,  the  want  of  an  uniform 
currency,  or  a  general  suspension  of  specie  payments.  The 
great  difficulty  arises  from  the  concurrent,  and  perhaps  debate- 
able  jurisdiction  of  the  general  and  state  governments :  and  we 
are  to  examine,  not  only  what  are  the  provisions  necessary  to 
attain  the  object  intended,  but  also  by  what  authority  the 
remedy,  must  be  administered. 

The  essential  difference  between  banking  and  other  commer- 
cial business,  is,  that  merchants  rely,  for  the  fulfilment  of  their 
engagements,  on  their  resources,  and  not  on  the  forbearance  of 
their  creditors,  whilst  the  banks  always  rely,  not  only  on  their 
resources,  but  also  on  the  probability  that  their  creditors  will 
not  require  payment  of  their  demands.  We  have  already  seen, 
that  this  probability  is  always  increased  or  lessened,  in  propor- 
tion as  the  issues  of  the  banks  are  moderate  or  excessive.  One 
of  the  most  efficient  modes  to  reduce  the  amount  of  bank  notes, 
as  compared  to  the  total  amount  of  the  currency  of  the  country, 
consists  in  the  increase  of  the  metallic  currency  which  circulates 
amongst  the  people,  independent  of  that  which  is  kept  in  reserve 
in  the  vaults  of  the  banks.  It  is  evident,  that,  inasmuch  as  only 
a  certain  amount  of  sound  currency  is  wanted,  and  can  be  sus- 
tained, that  part  which  consists  of  bank  notes  must  be  lessened, 
and  thereby  made  safer,  as  the  metallic  portion  is  increased. 
Whenever  also  the  soecie  of  the  banks  is  drained  by  any  extra- 
ordinary demand  whatever;,  delays,  and  often  difficulties,* may 
arise  in  the  importation  of  a  supply  from  abroad ;  which  is, 
however,  the  only  resource,  when  the  circulating  metallic  cur- 
rency has  nearly  disappeared. 

We  have  had  an  opportunity  to  witness  in  France  the  salutary 
effects  of  a  currency  consisting  principally  of  the  precious 
metals,  not  only  in  cases  of  great  national'  difficulty,  but  also  for 
the  specific  purpose  of  reinstating  a  bank  momentarily  endan- 
gered by  over  issues  of  paper.  But  we  prefer  referring  to  the 
evidence  of  a  very  able  and  practical  witness,  who  was  also 
deeply  interested  in  the  issue,  and  we  will  extract  this,  from  the 
work  of  another  distinguished  and  practical  writer.* 

"  Of  the  comparative  facility  with  which  the  coffers  of  a  bank 
which  has  suffered  too  great  a  reduction  of  its  reserves  by  im- 
prudent issues  of  paper  may  be  replenished  out  of  a  circulation 

*  Tooke  on  Currency. 


56  BANKS  AND  CURRENCY. 

consisting  in  great  proportion  of  coin,  notwithstanding  a  coinci- 
dent demand  for  large  payments  abroad,  a  strong  instance  is  af- 
forded in  the  case  of  the  Bank  of  France,  in  1817  and  1818. 
The  circumstance  is  thus  stated  in  Mr.  Baring's  evidence  in 
March  1819.  (Vide  Report  of  Lord's  Committee  on  the  resump- 
tion of  cash  payments,  p.  103.)  Speaking  of  a  drain  which  that 
bank  had  experienced,  he  says : — 

"  Their  bullion  was  reduced,  by  imprudent  issues,  from  one  hundred  and  sev- 
enteen millions  of  francs,  to  thirty-four  millions  of  francs,  and  has  returned,  by 
more  prudent  and  cautious  measures,  to  one  hundred  millions  of  francs,  at  which 
it  stood  ten  days  ago  when  I  left  Paris,  This  considerable  change  took  place 
since  the  first  week  in  November,  when  the  amount  of  specie  in  that  bank  was 
at  its  lowest.  It  must,  however,  be  always  recollected,  that  this  operation  took 
place  in  a  country,  every  part  of  the  circulation  of  which  is  saturated  with  specie, 
and,  therefore,  no  inference  can  be  drawn  in  favor  of  the  possibility  of  so  rapid 
an  operation  in  this  country,  where,  owing  to  the  absence  of  specie  in.circulation, 
the  supply  must  entirely  come  from  abroad ;  for  in  Paris,  though  some  portions 
may  have  come  from  foreign  countries,  the  great  supply  must  undoubtedly  have 
come  through  all  the  various  small  channels  of  circulation  through  that  kingdom." 

"Again,  in  the  same  evidence,  p.  105: — 

"Q.  Has  not  France,  after  two  years  of  great  scarcity  in  corn,  and  two  years 
of  foreign  contribution,  been  able  Jx>  contribute  a  proportion  of  the  precious 
metals  to  the  wants  of  Russia  and  Austria  ? 

"  A.  Undoubtedly,  the  precious  metals  have  been  supplied  from  France  to  Rus- 
sia and  Austria,  and  shipped,  to  a  considerable  amount,  to  America,  notwith- 
standing the  payments  to  foreign  powers,  and  very  large  payments  for  imported 
corn,  whilst,  at  the  same  time,  wine  having  almost  totally  failed  for  several  years 
past,  they  were  deprived  of  the  most  essential  article  of  their  export." 

"  And,  in  reference  to  these  payments,  in  the  preceding  an- 
swer, Mr.  Baring  states,  that  they 

'Produced  no  derangement  whatever  of  the  circulation  of  that  country 
(France.)' 

"  It  may  not  be  unimportant  further  to  remark,  that  the  state 
of  the  currency  in  France,  ever  since  the  suppression  of  the 
assignats,  appears  to  be  decisive  of  the  grecrt  advantages  attend- 
ing a  metallic  circulation,  in  times  of  political  difficulty  and 
danger.  On  no  one  great  occasion  did  her  efforts  appear*  to  be 
paralyzed,  or  even  restricted,  by  any  derangement  of  the  cur- 
rency ;  and  in  the  two  instances  of  her  territory  being  occupied 
by  an  invading  army,  there  does  not  appear  to  have  been  any 
material  fluctuation  in-  its  value." 

We  perceive  but  two  means  of  enlarging  the  circulating  me- 
tallic currency,  1st,  the  suppression  of  small  notes;  2d,  the 
measures  necessary  to  bring  again  gold  into  circulation. 

The  first  measure  is  that,  which,  after  long  experience,  a  most 
deliberate  investigation,  and,  notwithstanding  a  strenuous  oppo- 
sition by  the  parties  interested,  has  been  finally  adopted  and  per- 
severed in  by  the  government  of  Great  Britain.  By  the  sup- 
pression of  all  notes  of  a  denomination  less  than  £5  sterling,  in 
England,  Wales,  and  Ireland,  the  amount  of  the  circulating 
metallic  currency  has  become  equal  to  that  of  bank  notes  of 


BANKS  AND  CURRENCY.  57 

every  description.  That  metallic  currency  consists  of  eight  mil- 
lions sterling  in  silver,  which  is  receivable  only  in  payments  not 
exceeding  forty  shillings,  and  of  twenty-two  millions  sterling  in 
gold.  This  measure  has  given  a  better  security  against  fluctua- 
tions in  the  currency,  and  a  suspension  of  specie  payments,  than 
had  been  enjoyed  during  the  thirty  preceding  years.  In  France, 
where  the  Bank  of  France  is  alone  authorized  to  issue  bank 
notes,  and  none  of  a  denomination  under  five  hundred  francs, 
its  circulation  hardly  ever  reaches  ten  millions  sterling,  or  about 
one-tenth  part  of  the  currency  of  the  country.  In  the  United 
States,  all  the  banks  issue  notes  of  five  dollars.  The  states  of 
Pennsylvania,  Maryland,  and  Virginia,  and  perhaps  some 
others,  have  forbidden  the  issue  of  notes  of  a  lower  denomina- 
tion, to  the  great  convenience  of  the  community,  and  without 
experiencing  any  of  the  evils  which  had  been  predicted.  We 
have  seen,  in  Pennsylvania,  the  chasm  occasioned  by  that  sup- 
pression instantaneously  filled  by  silver,  without  the  least  dimi- 
nution in  the  amount  of  currency.  We  cannot  but  earnestly 
wish,  that  the  other  states  may  adopt  a  similar  measure,  and 
put  an  end  to  the  circulation  of  the  one,  two,  and  three  dollar 
notes,  which  is  of  no  utility  but  to  the  banks.  Those  small  notes 
are,  as  a  currency,  exclusively  local,  and  a  public  nuisance  : 
and,  in  case  of  the  failure  of  any  bank,  the  loss  arising  from 
them  falls  most  heavily  on  the  poorest  class  of  the  community. 
We  have  no  other  data  to  estimate  the  proportion  they  bear  to 
the  whole  amount  of  notes,  than  the  returns  of  the  banks  of 
Massachusetts  and  Maine,  subsequent  to  January  1825;  by 
which  it  appears,  that,  in  those  states,  those  small  notes  make 
one-fifth  part  of  the  whole  paper  currency.  But  we  would 
wish  to  go  further  than  this,  and,  in  order  to  bring  gold  more 
generally  into  circulation,  that  all  notes  under  the  denomination 
of  ten  dollars  might  be  suppressed.  The  five  dollar  notes  of  the 
Bank  of  the  United  States,  constitute  less  than  one-sixth  part  of 
its  circulation,  and  amount  in  value  to  two-thirds  of  that  of  its  ten 
dollar  notes.  From  those  data,  taking  into  consideration  the 
amount  of  currency  of  the  states  where  the  small  notes  do  not 
circulate,  and  allowing  that  a  portion  of  the  five  would  be  sup- 
plied by  ten  dollar  notes,  the  reduction  in  the  amount  of  the 
paper  currency,  arising  from  a  suppression  of  the  small  notes, 
may  be  estimated  at  six,  and  that  produced  by  the  suppression 
of  the  five  dollar  notes  at  about  seven  millions.  Both  together 
would  probably  lessen  the  paper  currency  by  one-fifth,  and  sub- 
stitute silver  and  gold  coins  in  lieu  thereof. 

We  have  already  adverted  to  the  erroneous  value  assigned  to 
gold  coins  by  the  laws  which  regulate  the  Mint  of  the  United 
States.  The  relative  value  of  that  metal  to  silver  was,  by  the 
law  of  1790,  fixed  at  the  rate  of  15  to  1.  In  England  it  was  at 
that  time  at  the  rate  of  15.2  to  1 ;  and  it  had  in  France,  after 

B 


58  BANKS  AA:D  CURRENCY. 

an  investigation  respecting  the  market  price  of  both  metals, 
been  established  at  the  rate  of  15 \  to  1,  as  early  as  the  year 
1785.  From  that  to  this  time,  gold  coins  have  never  been  be- 
low par  in  that  country,  and  have  generally  commanded  a  pre- 
mium, varying  from  one-fifth  to  one  per  cent.,  but  which,  on  an 
average,  has  been  rather  less  than  one-half  per  cent.  This  ratio 
in  all  those  instances  is  that  of  gold  to  silver  coins,  but  the  dif- 
ference is  greater  between  gold  and  silver  bullion.  Whether 
the  expense  of  coinage  is  defrayed  gratuitously  by  government, 
or  a  seignorage  is  charged  to  individuals,  coins  not  debased  or  de- 
teriorated will  almost  always  command  a  higher  price  than  bul- 
lion containing  the  same  quantity  of  pure  metal,  on  account  of 
their  greater  utility,  and  of  the  cost  of  coinage.  It  is  only  when 
there  is  at  the  same  time  a  redundancy  of  coin,  a  scarcity  of 
bullion,  and  a  great  demand  for  plate  or  other  manufactures, 
that,  when  the  general  coinage  is  sound,  coins  will  be  melted, 
and  the  price  of  bullion  be  equal  to  that  of  coins.  Should, 
however,  the  coinage  be  deteriorated,  new  good  coins  will  be 
melted  as  soon  as  they  issue  from  the  mint,  and  there  is  no  rem- 
edy but  a  general  recoinage  at  the  public  expense.  According 
to  the  mint  laws  of  England,  an  ounce  of  standard  gold  (contain- 
ing, like  ours,  eleven-twelfths  pure  and  one-twelfth  alloy)  is 
coined  into  £3  175.  lO^c/.  sterling;  and,  in  the  present  sound 
state  of  its  gold  coinage,  the  average  price  of  bullion  of  the 
same  standard  may  be  estimated  as  77s.7^.  No  solid  reason  can 
be  assigned,  why  the  actual  cost  of  coinage  should  not  be  charged 
by  government.  In  point  of  fact,  the  delay  of  two  months,  which 
eiapse  between  the  deposit  of  bullion  in  the  Mint  of  the  United 
»States,  and  the  delivery  of  the  coins,  is  nearly  equal  to  a  charge 
of  1  per  cent;  but  does  not  assist  in  defraying  the  expenses  of 
the  mint,  and  has  the  disadvantage  of  being  the  same  on  both 
metals.  When  the  annual  silver  coinage  of  our  mint  reaches  three 
millions  of  dollars,  the  expense  may  be  estimated  at  1  per  cent 
The  expense  on  the  same  value  of  gold,  no  silver  being  coined, 
would  amount  to  about  one-half  per  cent.  The  coinage  of  six 
millions,  half  in  silver  and  half  in  gold,  might  be  estimated  at  1 
per  cent,  on  the  first,  and  one-fifth  per  cent,  on  the  gold.  It  is 
obvious,  indeed,  that  it  is  more  expensive  to  coin  five  silver 
pieces,  worth  one  dollar  each,  than  one  gold  piece  worth  five 
dollars.  A  seignorage  at  the  last-mentioned  rate  might  be  ad- 
vantageously substituted  to  the  present  mode,  and  would  only 
require  a  moderate  constant  appropriation,  that  might  enable 
the  mint  to  pay  for  the  bullion  at  the  time,  or  at  least,  within 
ten  days  of  its  delivery. 

In  France,  the  mint  allows  3091  francs  for  each  kilogramme 
of  standard  gold.  This  is  coined  into  gold  coins  of  the  nominal 
value  of  3100  francs,  being  a  deduction  or  seignorage  of  less  than 
thfee-tenths  per  cent.  The  mint  price  of  standard  silver  is  197 


BANKS  AND  CURRENCY.  f>9 

francs  the  kilogramme,  which  is  coined  into  silver  coins  of  the 
nominal  value  of  200  francs;  the  deduction  or  seignorage 
amounting  to  Ij  per  cent.  This  is  too  great,  and  is,  at  least  in 
part,  the  cause  of  the  almost  constant  premium  on  gold  coins. 
Whilst  the  relative  value  of  gold  to  silver  coins  is  fixed  at  the 
rate  of  15j  to  1 ;  that  of  gold  to  silver  bullion,  is  at  the  rate  of 
3.091  :  197,  nearly  equal  to  15.69  :  1.  This  last  ratio  cannot 
essentially  differ  from  the  true  average  market  relative  price  of 
the  two  metals,  since  the  mint  has  been  abundantly  supplied 
with  both  for  the  last  forty-five  years. 

But  whether  we  estimate  that  relative  value,  by  deducing  it 
from  the  premium  on  the  French  gold  coins,  or  by  assuming 
that  of  gold  to  silver  bullion  as  purchased  by  the  French  mint, 
or  at  the  apparent  market  rate  in  England  during.the  three  or 
four  last  years,  which  would  give  respectively  the  ratios  of  about 
15.6,  15.7,  and  15.25  to  1 ;  it  is  evident  that  our  gold  coins  are 
underrated  at  least  4  per  cent.  The  necessary  consequence  is 
the  disappearance  of  gold  coins,  and  their  exportation  to  Eu- 
rope, whenever  the  exchange  will  admit  of  it.  According  to 
that  regulation,  a  ten  dollar  gold  coin,  or  Eagle,  contains  270 
grains  of  standard  gold ;  and  as  the  20  shillings  sterling  gold 
coin,  or  Sovereign,  contains  123£££  grains  of  gold  of  the  same 
standard,  about  $4.56  in  gold  coin  of  the  United  States,  contain 
a  quantity  of  pure  gold  equal  to  that  contained  in  a  Sovereign. 
Allowing  1  per  cent,  for  charges  and  transportation,  our  gold 
coins  may  commence  to  be  exported  to  England  as  soon  as  the  • 
exchange  rises  to  $4.61  per  pound  sterling;  which  rate  corre- 
sponds with  nearly  3f  per  cent,  above  the  nominal,  and  3  per 
cent,  below  the  true  par,  calculating  this  at  the  ratio  of  near 
15.6  to  1,  or  $4.75  per  pound  sterling.  We  find  by  the  tables 
of  exchange  annexed  to  the  report  of  the  Secretary  of  the  Trea- 
sury, that,  with  the  exception  of  the  year  of  the  embargo,  un- 
less incidentally  for  a  few  days,  the  exchange  on  London,  from 
1795  to  1821,  never  rose  to  $4.62  per  pound  sterling,  or  about 

4  per  cent,  above  the  nominal  par ;  or  in  other  words,  that  dur- 
ing the  whole  of  that  period,  the  exchange  was  constantly  fav- 
orable to  the  United  States,  having  never  been  higher,  with  the 
exception  aforesaid,  J  .,;:;  ,J  per  cent,  below  the  true  par.    This 
is  the  reason  why  our  gold  coins,  though  underrated,  were  not 
exported,  till  the  year  1821 ;  when  the  exchange  rose  from 
$4.60  to  $4.98  per  pound  sterling ;  and  our  gold  coins  began  to 
be  exported,  a  premium  of  one-half  per  cent,  upon  them  being 
given,  when  the  premium  on  the  nominal  par  of  exchange  was 

5  per  cent,  corresponding  to  an  exchange  of  near  $4.67  per 
pound  sterling.  From  that  time  to  the~end  of  the  year  1829,  the 
exchanges  have,  with  few  short  exceptions,  been  unfavorable  to 
the  United  States ;  and  the  exportation  has  continued,  not  only 
during  that  period,  but  also  during  the  last  nine  month?,  though 


60  BANKS  AND  CURRENCY. 

the  exchange  has  this  year  been  but  little  if  any  above  the  true 
par.  It  is  perfectly  clear,  that,  whilst  our  gold  coins  are  thus 
underrated,  they  will  be  exported,  whenever  the  exchange 
rises  above  $4.61  to  $4.64  per  pound  sterling;  and  that,  if  rated 
according  to  the  true  or  approximate  relative  value  of  gold  to 
silver,  they  would  not  be  exported  to  England  till  the  exchange 
had  risen  to  at  least  $4.80  to  $4.83,  or  more  than  1  per  cent, 
above  the  true  par. 

If  the  intention  is  to  exclude  the  gold  coins  altogether,  it  is 
quite  unnecessary  to  coin  gold.  If  it  is  intended  that  they  should 
make  part  of  the  circulation,  they  must  be  rated  at  or  near  their 
true  relative  value.  Unless  this  is  done,  the  circulating  metallic 
never  can  be  sufficiently  enlarged  to  insure  to  the  country  a 
sound  currency.  The  question,  whether  the  two  metals  should 
circulate  simultaneously,  has  never  been  made  a  matter  of  doubt 
when  there  has  been  no  paper  currency.  Both  are  then  indis- 
pensable, gold  for  large  payments  and  principally  for  remittances 
and  travellers,  and  sSver  for  small  daily  payments.  The  Secre- 
tary of  the  Treasury  correctly  states,  that,  "  if  there  were  no 
paper  medium  like  that  of  the  Bank  of  the  United  States,  cir- 
culating freely  in  all  parts  of  the  Union,  and  everywhere  con- 
vertible into  the  standard,  at  a  very  moderate  discount,  gold 
coins  would  be  almost  indispensable.  Without  them,  every  trav- 
eller, even  from  state  to  state,  and  often  from  one  county  to 
another,  must  encumber  himself  with  silver,  or  be  exposed  to 
vexatious  embarrassments  and  impositions."  A  country  which 
wishes  to  make  gold  the  only  standard  of  value,  is  still  compelled 
to  admit  a  silver  coinage  for  small  payments.  Where  silver  is 
the  standard,  gold  would  still  be  found  necessary  unless  supplied 
by  paper.  It  is  true,  that  so  long  as  five  dollar  notes  exchange- 
able everywhere  for  specie  do  circulate,  gold,  though  rated  at 
its  value,  will  be  less  in  demand,  and  that  many  persons  will 
prefer  the  notes.  But  even  in  that  case,  both  may  at  least  be 
permitted  to  circulate  concurrently,  leaving  to  every  individual 
the  option  of  either.  At  all  events,  if  thus  rated,  they  would 
assist  in  filling  the  vaults  of  the  banks,  and  thereby  throw  a 
larger  quantity  of  silver  in  circulation. 

It  has  been  objected  to  the  simultaneous  circulation  of  the  two 
metals,  that  the  fluctuation  in  their  relative  price,  increases  the 
uncertainty  of  the  standard.  This  is  true,  but  not  to  the  extent 
which  a  first  view  of  the  subject  may  suggest,  and,  even  to  that 
extent,  producing  so  small  an  effect  that  it  may  be  altogether 
neglected. 

There  are  four  contingencies  which  may  cause  a  fluctuation 
in  the  relative  price  of  gold  and  silver,  as  either  may  either  rise 
or  fall,  as  compared  to  the  value  of  all  other  commodities. 
Supposing  a  country  where  silver  is  made  the  only  legal  tender, 
it  is  clear  that  in  two  of  those  contingencies,  namely,  if  the 


BANKS  AND  CURRENCY.  61 

price  of  gold  should  rise,  or  if  that  of  silver  should  fall,  every 
payment  would  have  still  been  made  in  silver,  if  both  metals 
had  been  a  legal  tender,  and  the  option  given  to  the  debtors  to 
pay  with  either.  As  the  probability  of  those  several  contingen- 
cies is  perfectly  equal,  it  follows  that,  in  one-half  of  the  fluctua- 
tions which  may  take  place  in  the  relative  price  of  the  two 
metals,  it  is  perfectly  immaterial,  whether  one  or  both  are  made 
a  legal  tender.  With  respect  to  the  two  other  contingencies ;  if 
the  price  of  silver  should  rise,  that  of  gold  remaining  the  same 
as  compared  to  all  other  commodities,  the  debtors  in  the  coun- 
try where  both  metals  were  a  legal  tender,  would  pay  in  gold, 
and  therefore  in  perfect  conformity  with  the  original  contract; 
whilst,  in  the  country  where  silver  alone  was  a  legal  tender, 
they  would  be  obliged  to  pay  in  that  metal,  that  is  to  say,  to 
pay  a  greater  value  than  according  to  the  original  contract : 
and,  on  the  other  hand,  if  the  price  of  gold  should  fall,  that  of 
silver,  as  compared  to  all  other  commodities,  remaining  the 
same,  the  debtors  would,  in  the  country  which  admitted  only 
silver  as  a  legal  tender,  be  obliged  to  pay  in  that  metal  in  con- 
formity with  the  contract ;  while  in  the  country  where  both 
metals  were  a  legal  tender,  the  debtors  would  pay  in  gold,  that 
is  to  say,  a  sum  less  than  according  to  the  contract.  Whatever 
may  be  the  amount  of  fluctuation,  the  stability  of  the  standard 
of  value  is  not,  by  adopting  only  one  metal  as  such,  improved 
to  a  greater  extent  than  has  now  been  stated.  But  the  fact  is, 
that  the  fluctuations  in  the  relative  price  of  gold  and  silver 
coins  are  so  small  in  a  country  where  the  mint  is  open  to  all 
individuals,  and  under  proper  regulations,  that,  when  compared 
with  the  variations  to  which  coins  issuing  from  the  same  mint 
are  liable,  they  may  be  altogether  disregarded. 

It  has  been  sometimes  erroneously  supposed,  that  governments 
might  alter  by  their  own  regulations  the  actual  relative  value 
of  the  two  precious  metals.  This  might  be  done  to  a  considera- 
ble extent,  if  these  had  no  intrinsic  value ;  that  is  to  say,  if  they 
could  be  obtained  without  capital  or  labor,  or  if,  whatever  the 
cost  of  production  might  be,  they  were  of  no  utility  whatever 
except  for  currency.  In  the  first  case,  governments  might  at- 
tach any  value  they  pleased  to  either  metal,  in  the  same  manner 
as  is  now  done  with  paper  money.  In  the  latter  case,  there 
being  no  other  demand  except  that  of  governments,  the  price 
of  either  metal  might  be  reduced  so  low,  as  to  compel  an  aban- 
donment of  all  the  poorer,  but  not  lower  than  the  cost  of  pro- 
duction at  the  most  fertile  mines.  But  the  intrinsic  value  of 
the  precious  metals,"  combined  with  the  general  demand  for 
them,  determines  their  market  price.  Governments  are  among 
the  principal,  but  not  the  only  consumers.  If  the  demand  for 
cither  gold  or  silver  for  the  purpose  of  currency  was  to  cease 
altogether,  it  would  have  an  effect  on  the  market  price  of  the 


62  BANKS  AND  CURRENCY. 

metal  excluded ;  but  a  government,  which  uses  both  as  cur- 
rency, cannot  affect  their  permanent  relative  value.  It  may, 
however,  to  a  certain  extent,  prevent  great  fluctuations,  by 
coining  at  all  times  for  all  individuals  who  may  bring  in  bullion, 
allowing  always  the  same  regular  price,  and  paying  for  it  with- 
out delay,  and  without  any  other  charge  than  the  actual  cost 
of  coining. 

It  has  already  been  stated,  that  the  relative  mint  price  of 
gold  and  silver  bullion  in  France  (about  15.7:1)  is  very  near 
the  average  market  price  of  those  two  metals.  And  by  giving 
always  the  same  regular  price  for  each,  government  has,  to  a 
certain  degree,  prevented  any  great  fall  in  the  price  of  either. 
It  is  only  during  short  and  extraordinary  periods,  that  the  fluc- 
tuations have  been  so  great,  as  that  the  gold  coins  did,  either 
fall  to  the  par  of  silver  coins,  or  rise  to  a  premium  of  one  per 
cent.  During  by  far  the  greater  part  of  the  period  of  forty- 
five  years,  which  has  elapsed  since  that  regulation  took  place, 
this  premium  has  fluctuated  from  one-fifth  to  one-half  per  cent. ; 
so  that  the  variations  in  the  relative  price  of  the  two  metals 
have,  with  the  few  exceptions  above  mentioned,  been  less  than 
one-third  per  cent.  And  even  these  would  have  been  less,  had 
not,  as  has  already  been  stated,  the  silver  coins  been  overrated 
by  charging  about  one-half  per  cent,  too  much  on  their  coinage. 

It  is  believed  that  there  is  no  mint  which  issues  more  faithful 
and  perfect  coins  than  that  of  the  United  States.  The  ex- 
treme variation  from  standard  fineness,  as  determined  by  the 
annual  assay,  does  not  exceed  one-fifth  per  cent,  on  the  silver 
coins ;  on  the  gold  coins  it  is  too  small  to  be  appreciated.  On 
a  large  sum  as  delivered  from  the  mint,  the  weight,  if  not  pre- 
cisely accurate,  would  almost  uniformly  be  found  to  fail  in  ex- 
cess. But  trivial  deviations  in  weight  on  single  pieces  are  una- 
voidable :  they  rarely  exceed  one-third  per  cent,  on  the  hea- 
viest silver,  and  are  less  than  one-sixth  per  cent,  on  the  gold 
coins.  If,  to  those  unavoidable  deviations,  be  added  the  loss 
which  coins  experience  by  friction,  it  will  be  found  that  they 
exceed  in  value  the  fluctuations  in  the  relative  market  price 
of  the  gold  and  silver  coins  issued  under  proper  mint  regula- 
tions, and  therefore  that  these  are  a,  quantity  which  may  be 
neglected,  and  which,  in  fact,  is  never  taken  into  consideration 
at  the  time  of  making  the  contract. 

The  importance  of  preserving  a  permanent  standard  of  value 
is  the  leading  principle,  which  we  have  tried  to  enforce  in  this 
paper ;  and  it  is  for  that  express  purpose  that  we  consider  an 
alteration  in  the  mint  regulations,  which  alone  can  bring  gold 
into  circulation,  as  absolutely  necessary.  The  rate  heretofore 
adopted  had  its  origin  in  a  mistake,  and  was  not  at  all  intended 
for  the  purpose  of  excluding  gold.  It  did  not  produce  that  effect 
for  thirty  years,  on  account  of  the  favorable  rate  of  exchanges. 


BANKS  AND  CURRENCY.  63 

To  persist  in  it,  now  that  experience  has  shown  the  evils  it  pro- 
duces, and  amongst  others  the  undeniable  exportation  of  gold, 
and  of  gold  coins,  at  a  time  when  the  exchanges  may  be  three 
per  cent,  under  the  true  par,  instead  of  being  adherence  to  the 
original  plan,  is  an  obvious  deviation  from  its  avowed  object. 
We  are  sacrificing  reality  to  a  pure  shadow,  when  for  the  sake 
of  an  abstraction,  and  in  order  to  avoid  a  contingent  and  doubt- 
ful fluctuation  of  one-half  per  cent,  in  the  standard  of  value, 
we  promote,  by  the  total  exclusion  of  gold  from  circulation,  that 
increase  of  the  paper  currency,  which  alone  can  materially  en- 
danger that  standard. 

But  even  this  objection  may  be  removed  by  raising  the  mint 
price  of  gold  only  to  that  rate,  which  will  render  it  almost  im- 
possible that  its  legal  value  should  ever  be  higher  than  its  mar- 
ket price.  We  would,  therefore,  suggest  the  adoption,  in  the 
relative  legal  value  of  the  gold  and  silver  coins,  of  a  ratio  not 
much  above  that  of  15.6:1,  rather  than  one  nearer  to  the  aver- 
age relative  value  of  the  two  metals.  As  the  exchange  must 
rise  more  than  one  per  cent,  above  the  true  par  derived  from 
the  legal  relative  value  which  may  be  adopted,  before  Ameri- 
can gold  coins  can  be  exported,  this  would  not  take  place  to 
England,  until  the  exchange  had  risen  to  at  least  $4  81  per 
pound  sterling.  On  the  other  hand,  that  ratio  being  lower  than 
that  of  the  relative  value  of  gold  and  silver  bullion  either  in 
England  or  in  France,  there  would  be  no  danger  of  the  price 
of  the  gold  falling  below  that  of  tU,  silver  coins.  On  the  con- 
trary, it  is  extremely  probable,  that  the  gold  coins  would  gene- 
rally, as  in  France,  command  a  small  premium,  and  be  used 
with  great  convenience  as  subsidiary  to  silver,  which  would  re- 
main as  heretofore  our  standard  of  value.  Either  of  the  ratios 
of  2700:173  (equal  to  about  15.6089:1),  and  of  125:8  (equal  to 
15.625:1)  would  answer  that  purpose.  According  to  the  first, 
the  weight  of  the  eagle  would  be  in  standard  gold,  259.5 ;  and 
according  to  the  second  259.2  grains.  The  last  ratio  is  the  most 
simple,  and  is  capable  of  a  definite  expression  in  decimals.  The 
only  advantage  of  the  first,  the  expression  of  which,  though  less 
simple,  is  however  perfectly  definite,  consists  in  making  the  cor- 
responding value  of  the  pound  sterling  almost  equal  to  $4  75, 
(nearly  4.7505,)  which  would  afford  much  convenience  in  the 
calculations  of  duties  and  exchange.  The  corresponding  value 
of  the  pound  sterling,  according  to  the  second  ratio,  would  be 
near  $4  75.6.  We  think,  that  at  all  events,  the  ratio  should 
not  exceed  that  of  675:43,  (nearly  equal  to  15.7:1,)  which  would 
give  two  hundred  and  fifty-eight  grains  for  the  weight  of  the 
eagle  in  standard  gold,  and  about  $4  77.8  for  the  corresponding 
value  of  the  pound  sterling.* 


*  See  Note  A, 


C4  BAI\K8  AND  CURRENCY. 

Another  consideration  may  be  adduced  in  favor  of  the  pro- 
posed reform  of  our  gold  coins.  It  seems  to  be  well  ascertained 
that  the  United  States  contain  one  of  the  most  extensive  deposits 
of  gold  that  has  yet  been  discovered.  It  extends  from  the  central 
parts  of  Virginia,  in  a  south-west  direction,  to  the  state  of  Ala- 
bama. It  is  said  to  have  yielded  the  value  of  near  half  a  mil- 
lion of  dollars  this  year,  and  it  is  not  improbable  that  it  will  ere 
long  afford  an  annual  produce  of  several  millions.  It  appears 
but  just  to  afford,  to  those  employed  in  collecting  that  natural 
product,  a  certain  and  the  highest  home  market  of  which  it  is 
susceptible.  This  cannot  be  the  case,  so  long  as  gold  is  only  a 
merchandise  for  exportation,  and  will  be  effected  by  making  it 
a  current  coin,  and  reducing  the  charge  of  coinage  in  the  man- 
ner which  has  been  before  suggested.  In  every  point  of  view, 
we  consider  this  last  measure,  that  of  enabling  the  mint  to  pay 
immediately  for  the  bullion,  and  of  substituting,  to  the  delay  of 
two  months,  a  small  duty  on  the  coinage  not  higher  than  its  cost, 
as  of  no  inconsiderable  importance. 

Great  Britain,  in  adopting  gold  as  the  sole  standard  of  value, 
has  found  it,  however,  absolutely  necessary  to  admit  silver  coins 
for  payments  not  exceeding  forty  shillings.  This  limitation 
would,  it  seems,  have  been  sufficient  for  the  object  intended. 
But,  whether  in  order  to  prevent  the  exportation,  or  only  the 
better  to  assert  the  adherence  to  an  abstract  principle,  the  new 
silver  coinage  has  been  overrated  about  nine  per  cent,  by  coin- 
ing the  troy  pound  weight  of  standard  silver  into  sixty-six  in- 
stead of  sixty-two  shillings.  This  debased  coin  is  attended  with 
the  same  inconvenience  as  a  paper  currency  issued  by  govern- 
ment. There  is,  on  account  of  the  profit,  a  temptation  to  issue 
too  much ;  and  no  sure  means  can  be  found  of  ascertaining  the 
amount  wanted  for  effecting  the  payments  to  which  that  por- 
tion of  the  currency  is  applicable.  It  is  worthy  of  remark,  that 
England,  from  a  scrupulous  adherence  to  a  single  standard,  should 
have  actually  established  two  distinct  standards  of  value,  one 
for  wholesale  and.  the  other  for  retail  transactions.  It  is  obvi- 
ous, that  since  a  debased  coin  can  be  neither  profitably  exported 
nor  applied  to  other  purposes,  any  considerable  excess,  beyond 
what  is  actually  wanted  for  effecting  small  payments,  must  cause 
a  depreciation.  Should  government  be  ever  so  moderate  in  its 
issues,  the  facility  with  which  that  coin  may  be,  not  counter- 
feited, but  illegally  imitated  and  put  into  circulation,  must  ulti- 
mately defeat  the  object  intended.  In  the  meanwhile,  should 
the  excess  be  such,  that  the  retailers  of  every  description,  who 
are  obliged  to  take  in  payment  silver  inapplicable  to  wholesale 
purchases,  could  not  dispose  of  the  surplus,  they  must,  to  indem- 
nify themselves,  add  something  to  their  prices.  We  believe  this 
to  be  already  the  fact,  and  that  this,  like  every  other  depreci- 


BANKS  AND  CURRENCY.  65 

ated  currency,  operates  as  a  tax,  which  affects  principally  all 
those  who  are  compelled  to  purchase  every  thing  by  retail. 

These  two  measures,  suggested  for  the  purpose  of  enlarging 
the  circulating  metallic  currency,  recommend  themselves  by 
their  simplicity,  and  are  founded  on  the  beneficial  experience 
of  almost  every  other  country.  In  Europe,  England  alone  has 
resorted  to  a  single  standard,  and  that  nominally,  since  her  silver 
circulation  amounts  to  eight  millions  sterling,  or  to  more  than 
one- third  of  her  gold,  and  almost  to  one-third  of  her  paper  cur- 
rency. We  believe  that  small  notes,  or  tokens,  circulate  no 
longer  anywhere  but  in  Russia,  Sweden,  and  Scotland.  The 
situation  of  two  of  those  countries  is  in  nowise  parallel  to  that 
of  the  United  States.  Twenty  shilling  notes  continue  to  circu- 
late in  Scotland ;  but  the  solidity  of  the  banking  system  of  that 
country  offers  an  anomaly  which  has  not  been  satisfactorily  ex- 
plained. The  numerous  failures  of  country  banks  in  England 
have  been  sometimes  ascribed  to  their  not  being  incorporated 
companies ;  which  is  disproved  by  the  solidity  of  the  numerous 
Scotch  banks  of  the  same  description,  and  by  the  repeated  fail- 
ures of  our  own  chartered  banks ;  and  sometimes  to  their  not 
being  permitted  by  law  to  consist  of  a  sufficient  number  of  part- 
ners. But  of  the  twenty-nine  banks  of  Scotland  which  are  not 
chartered,  seventeen  are  voluntary  associations,  consisting  of 
from  three  to  nineteen  partners,  the  credit  of  which  is  as  good 
as  that  of  the  other  twelve  unincorporated,  and  of  the  three 
chartered  banks  of  that  country.  We  believe,  that  independent 
of  the  peculiarities  which  distinguish  the  Scotch  banking  sys- 
tem, its  superior  stability  must  be  principally  ascribed  to  the 
persevering  but  cautious  enterprise,  to  the  great  frugality,  and 
generally  to  the  habits  of  that  nation.* 

It  is  difficult  to  devise  the  more  direct  means  by  which  the 
over-issues  of  banks  may  be  checked.  Several  of  the  states  have 
as  yet  taken  no  measures  to  that  effect.  Many  appear  to  have 
tried  to  apply  rather  penal  than  preventive  remedies.  The  laws 
by  which  it  has  been  attempted  to  limit  either  the  loans  or  the 
issues  made  by  the  banks,  have  generally  been  intended  to  pre- 
vent what  never  can  take  place.  Amongst  more  than  three 
hundred  banks,  either  now  existing  or  which  have  failed,  and 
of  which  we  have  returns,  we  have  not  found  a  single  one,  the 
loans  of  which  amounted,  so  long  as  specie  payments  were  in 
force,  to  three  times,  or  the  issues  to  twice  the  amount  of  their 
capital.  It  is  clear,  that  provisions  applicable  to  such  improba- 
ble contingencies  are  purely  nominal.  The  statements  we  have 
given  show  that  the  average  amount  of  notes  issued  by  the 
state  banks  does  not,  taken  together,  exceed  forty-four  per  cent* 
nor  the  aggregate  amount  of  their  notes  and  deposits,  eighty-one 


*  See  Note  B. 
I 


66  BANKS  AND  CURRENCY. 

per  cent,  of  their  capital.  The  loans  made  by  those  banks,  of 
which  we  have  returns  in  that  respect,  amount  to  129,815,441, 
and  their  aggregate  capital  to  89,779,557  dollars.  Those  facts 
afford  sufficient  data  to  form  an  opinion  of  the  necessary  pro- 
visions in  that  respect.  The  restrictions  can  only  be  made  in 
reference  to  the  capital  actually  paid  in,  and  to  apply  to  the 
amount  of  loans  and  issues,  which,  with  the  exception  of  de- 
posits, are  the  only  items  that  can  be  always  limited  by  the 
banks.  And  the  deposits,  independent  of  being  voluntary,  coul " 
not  without  much  inconvenience,  both  to  the  banks  and  thei 
customers,  be  restricted  to  a  fixed  amount.  We  think  that  no 
bank  should  be  permitted  to  extend  its  loans,  including  stocks 
of  every  description,  and  every  species  of  debt  in  whatever 
manner  secured,  beyond  twice  the  amount  of  its  capital.  We 
find  provisions  to  that  effect  in  the  laws  of  Massachusetts  and 
Louisiana.  That  proportion  is  forty  per  cent,  greater  than  that 
of  the  banks  above  mentioned,  and  greater,  as  we  think,  than 
is  consistent  with  the  safety  of  almost  any  bank.  •  The  aggre- 
gate of  the  loans  made  and  of  the  stocks  owned  by  the  former 
Bank  of  the  United  States,  never  amounted  to  seventy  per 
cent.,  nor  that  of  the  existing  bank  to  fifty  per  cent,  beyond 
the  amount  of  their  respective  capitals.  This  restriction  alone 
necessarily  checks  the  aggregate  amount  of  the  issues  and  de- 
posits of  a  bank ;  which,  in  that  case,  never  can  together  ex- 
ceed the  amount  of  its  capital,  beyond  the  specie  in  its  vaults, 
and  the  nominal  value  of  its  real  estate.  But  we  believe  that 
a  positive  restriction  on  the  issue  of  notes,  so  that  they  never 
should  exceed  two-thirds  of  the  capital,  would  be  highly  bene- 
ficial. The  only  objection  is,  with  respect  to  country  banks, 
which  have  not  the  same  proportionate  amount  of  deposits  as 
the  city  banks,  and  may  on  that  account  claim  a  greater  latitude 
with  respect  to  notes.  But  it  will  be  perceived  by  the  following 
statement,  which  includes  thirty  banks  of  the  state  of  New- York 
that  have  more  than  three-fourths  of  the  whole  banking  capital 
of  the  state,  and  all  the  chartered  banks  of  Pennsylvania  and 
Massachusetts,  that,  taking  into  consideration  both  notes  and  de- 
posits, the  proportion  of  these  to  the  capital  is  far  greater  in  the 
country  than  in  the  city  banks.  The  relative  proportions  are, 
in  New- York  and  in  Pennsylvania  as  seven  to  four,  and  in  Mas- 
sachusetts as  three  to  two.  A  reduction  in  the  amount  of  notes 
to  two-thirds  of  that  of  the  capital  would  not  affect  this  state, 
and  would  still  leave  in  Pennsylvania  and  New- York,  the  pro- 
portion of  notes  and  deposits  to  capital,  much  greater  in  the 
country,  than  in  the  city  banks.  The  circulation  of  these  is,  in 
both  states,  less  than  their  capital.  The  restriction  proposed 
would  still  leave  the  circulation  of  the  country  banks,  in  Penn- 
sylvania, of  4,235,000  on  a  capital  of  3,506,000  dollars,  and  in 
New- York  of  6,737,000  on  a  capital  of  4,926,000  dollars. 


i 


Massachusetts, 

Specie,     -  - 

Capital,    -  - 

Notes,       -  - 

Deposits,  -  - 

Circulation,  - 

Pennsylvania, 

Specie,     -  - 

Capital,    -  - 

Notes,       -  - 

Deposits,  -  - 

Circulation,  - 

New-York, 

Specie,     -  - 

Capital,    -  - 

Notes,       -  - 

Deposits,  -  - 


BANKS  AND  CURRENCY. 

City. 

$    747,684     -     -     - 
13,450,000     -     -     - 


67 


Country. 

239,526 
5,702,400 


2,357,678     ....       2,160,000 
2,202,092     ....          658,190 

4,559,770     .---     ~2,818,190 


$1,639,134  ....  $    775,537 

9,903,930  ....  3,506,403 

3,648,719  ....  3,659,650 

5,046,183  ....  1,795,266 

~8,"694,902  ....  5,454,916 


$1,169,581     -     - 
10,711,200     -     - 


3,394,257     -     - 
6,662,174     -     - 


-  -  $    390,710 
.  -  4,926,153 

-  -  4,567,023 

-  -  3,692,326 


Circulation,  -     10,056,431     -     -     -     -        8,259,349 

We  do  not  wish,  by  the  preceding  observations,  to  be  under- 
stood as  objecting  generally  to  the  extension  of  the  banking 
system  to  the  country,  but  only  to  the  indiscriminate  establish- 
ment of  banks,  without  regard  to  the  actual  wants  and  means 
of  the  districts  which  may  apply  for  that  purpose.  There  is  a 
general  spirit  of  enterprise  in  the  United  States,  to  which  they 
are  greatly  indebted  for  their  rapid  growth ;  and  it  is  difficult 
to  ascertain,  in  all  cases,  to  what  extent  it  should  be  encouraged, 
and  when  it  ought  to  be  checked.  The  remarks  apply  particu- 
larly to  the  newly  settled  parts  of  the  country,  which  present  a 
state  of  things,  different  from  that  found  in  any  other  part  of  the 
civilized  world,  and  to  which,  therefore,  even  the  most  generally 
admitted  principles  of  political  economy  will  not  always  apply. 

Amongst  the  first  emigrants,  there  are  but  few  possessed  of 
much  capital ;  and  these,  generally  employing  it  in  the  purchase 
of  land,  are  soon  left  without  any  active  resources.  The  great 
mass  bring  nothing  with  them,  but  their  industry,  and  a  small 
stock  of  cattle  and  horses.  A  considerable  portion  of  the  annual 
labor  is  employed  in  clearing,  inclosing,  and  preparing  the  land 
for  cultivation.  Those  difficulties,  and  all  the  privations  incident 
to  their  new  situation,  are  encountered  with  unparalleled  spirit 
and  perseverance.  Within  a  very  short  time,  our  numerous  new 
settlements,  which  in  a  few  years  have  extended  from  the  Mo- 
hawk to  the  great  western  lakes,  and  from  the  Alleghany  to  the 


68  BANKS  AND  CURRENCY. 

Mississippi  and  beyond  it,  afford  the  spectacle  of  a  large  popu- 
lation, with  the  knowledge,  the  intelligence  and  the  habits  which 
belong  to  civilized  life,  amply  supplied  with  the  means  of  sub- 
sistence, but  without  any  other  active  capital,  but  agricultural 
products,  for  which,  in  many  instances,  they  have  no  market. 
It  is  in  this  last  respect,  that  their  situation  essentially  differs 
from  that  of  any  other  country  as  far  advanced  in  civilization. 
We  might  even  add,  that  there  is,  in  several  ancient  settlements 
of  the  United  States,  a  less  amount  of  active  capital,  than  in  the 
interior  parts  of  many  European  countries.  The  national  indus- 
try, out  of  the  seaports,  has,  at  least  till  very  lately,  been  exclu- 
sively applied  to  agriculture ;  and  circulating  capital  will  rarely 
be  created,  out  of  commercial  cities,  without  the  assistance  of 
manufactures. 

With  the  greatest  abundance  of  provisions,  it  is  impossible 
for  a  new  country  to  purchase  what  it  does  not  produce,  unless 
it  has  a  market  for  its  own  products.  Specie  is  a  foreign  product, 
and,  though  one  of  the  most  necessary,  is  not  yet  always  that 
which  is  most  imperatively  required.  We  may  aver  from  our 
own  knowledge,  that  the  western  counties  of  Pennsylvania  had 
not,  during  more  than  twenty  years  after  their  first  settlement, 
the  specie  necessary  for  their  own  internal  trade  and  usual 
transactions.  The  want  of  communications,  and  the  great  bulk 
of  their  usual  products,  reduced  their  exports  to  a  most  incon- 
siderable amount.  The  two  indispensable  articles  of  iron  and 
salt,  and  a  few  others  almost  equally  necessary,  consumed  all 
their  resources.  The  principle,  almost  universally  true,  that 
each  country  will  be  naturally  supplied  with  the  precious  metals 
according  to  its  wants,  did  not  apply  to  their  situation.  House- 
hold manufactures  supplied  the  inhabitants  with  their  ordinary 
clothing,  and  the  internal  trade  and  exchanges  were  almost  ex- 
clusively carried  on  by  barter.  This  effectually  checked  any 
advance  even  in  the  most  necessary  manufactures.  Every  spe- 
cies of  business  required  the  utmost  caution,  as  any  failure  in 
the  performance  of  engagements  in  the  way  of  barter,  became, 
under  the  general  law  of  the  land,  an  obligation  to  pay  money, 
and  might  involve  the  party  in  complete  ruin.  Under  those 
circumstances,  even  a  paper  currency,  kept  within  proper 
bounds,  might  have  proved  useful.  We  know  the  great  diffi- 
culties which  were  encountered  by  those  who  first  attempted  to 
establish  the  most  necessary  manufactures,  and  that  they  would 
have  been  essentially  relieved,  and  some  of  them  saved  from 
ruin,  by  moderate  bank  loans.  Yet  there  were  instances  where 
those  difficulties  were  overcome,  and  the  most  successful  manu- 
factures of  iron  and  glass  were  established  and  prospered  prior 
to  the  establishment  of  any  bank ;  but  the  general  progress  of 
the  country  was  extremely  slow,  and  might  have  been  hastened 
by  such  institutions  soberly  administered.  It  is  obvious  that  in 


BANKS  AND  CURRENCY.  69 

this  and  other  similar  cases,  where  there  is  an  actual  want  of 
capital,  this  should,  in  order  to  insure  success,  be  obtained  from 
the  more  wealthy  parts  of  the  country,  either  by  subscriptions 
to  local  banks,  or  by  the  establishment  of  branches  of  the  city 
banks. 

Some  of  the  first  settlements  in  other  parts  of  the  country, 
were,  for  a  length  of  time,  in  a  similar  situation.  The  progress 
of  others,  under  more  favorable  circumstances,  has  been  much 
more  rapjd.  The  western  parts  of  the  state  of  New- York  have 
always  enjoyed  a  nearer  and  more  accessible  market.  The  ac- 
quisition of  Louisiana,  the  invention  of  steam-boats,  and  the  im- 
proved communications  by  land  and  water,  have  entirely  changed 
the  state  of  things  west  of  the  Alleghany  mountains.  Still,  and 
notwithstanding  the  unparalleled  increase  of  population,  and  the 
rapid  progress  in  every  respect  of  the  new  states  or  settlements, 
their  wealth  does  not,  in  any  degree,  correspond,  either  with 
that  population,  or  with  their  advances  in  agriculture.  All  new 
colonies,  either  from  Europe  to  America,  or  from  the  ancient 
settlements  to  the  more  interior  part  of  America,  have,  under 
different  modifications,  been  ever  placed  in  a  similar  situation. 
To  this  must  be  ascribed  the  issues  of  paper  money  by  the  seve- 
ral states,  whilst  under  the  colonial  government.  This  currency, 
in  many  instances  useful,  was,  as  usual,  often  carried  to  excess, 
and  depreciated  accordingly.  The  same  causes  continue  to  pro- 
duce similar  effects.  The  eagerness  for  country  banks  is  natural, 
but  often  mistakes  its  object.  They  may  be  safely  established 
in  flourishing  towns  or  villages,  either  commercial  or  manufac- 
turing, provided  their  issues  are  restrained  within  proper  bounds. 
It  is  to  the  abuse,  and  not  to  the  use,  that  we  object.  The  profits 
of  agriculture  are  so  moderate,  at  least  in  the  middle  states,  and 
the  returns  so  slow,  that  even  loans  on  mortgages  are  rarely  use- 
ful. But  when  made  by  banks,  on  notes  at  sixty  days,  without 
any  other  substantial  security  than  real  estate,  they  never  can 
be  relied  on  as  an  immediate  resource,  and,  when  payment  is 
urged,  they  almost  always  prove  ruinous  to  the  borrowers,  and 
are  often  attended  with  heavy  losses  to  the  banks.  The  example 
of  Pennsylvania  has  clearly  shown,  that  the  calamities  inflicted 
by  the  failures  of  country  banks,  established  in  unfit  places,  or 
for  want  of  experience,  improperly  administered,  have  been  still 
more  fatal  to  the  inhabitants  of  the  districts  in  which  they  were 
situated,  than  to  the  state  at  large.  It  is  well  known  that  the 
same  observation  applies,  with  equal,  if  not  greater  force,  to 
other  states  than  Pennsylvania. 

The  revised  statutes  of  the  state  of  New- York,  besides  several 
salutary  provisions  for  the  bona  fide  payment  of  the  stock  sub- 
scribed, to  prevent  any  dividend  greater  than  the  actual  profits, 
and  generally  for  the  prevention  of  frauds,  contain  one  of  pri- 
mary importance,  adopted  also  in  Maryland  and  some  other 


70  BAXKS  AND  CURRENCY. 

states,  by  which  the  charter  is  forfeited,  whenever  the  bank  re- 
fuses or  declines  to  pay  on  demand,  its  notes  or  deposits  in  specie. 
But  the  restriction  on  loans  and  discounts,  which  limits  their 
amount  to  three  times  that  of  the  capital,  is  purely  nominal ;  and 
the  responsibility  imposed  on  stockholders,  though  already  adopt- 
ed in  some  other  states,  has  been  considered  as  objectionable.  As 
a  substitute,  and  with  a  laudable  intent  to  protect  the  community 
against  partial  failures,  a  "  safety  fund"  has  since  been  establish- 
ed by  law,  consisting  of  a  tax  of  one-half  per  cent,  on  the  capital 
of  every  bank,  and  which  is  applicable  to  the  payment  of  the 
notes  of  any  that  may  fail.  This  must  have  a  tendency  to  en- 
courage excessive  issues  of  paper,  which  could  not  be  sustained 
if  resting  only  on  the  credit  of  the  bank  by  which  they  are  made. 
But,  unacquainted  as  we  are  with  the  reasons  alleged  in  favor 
of  that  measure,  it  appears  to  us  unjust;  1st,  by  making  insti- 
tutions properly  managed,  responsible  for  the  conduct  of  others 
at  a  great  distance,  and  over  which  they  have  no  control ;  2d, 
because,  on  account  of  the  disproportion  between  the  aggregate 
of  the  circulation  and  deposits  of  the  city  and  country  banks  re- 
spectively, the  first  are  made  to  pay,  in  the  safety  fund,  about 
twice  as  much  in  proportion  as  the  country  banks.  This  will 
appear  evident  by  referring  to  the  last  statement,  and  does  not 
accord  with  the  principles  of  a  government  founded  on  the  equal 
rights  of  all.* 

One  of  the  most  efficient  securities  afforded  by  the  state  laws 
against  improvident  issues  of  notes,  is  to  be  found  in  that  of  Mas- 
sachusetts, by  which  banks  are  obliged  to  pay  interest  at  the 
rate  of  24  per  cent,  a  year,  on  all  notes  or  deposits  which  they 
may  neglect  or  refuse  to  pay  in  specie  on  demand.  A  similar 
provision,  but  at  the  rate  of  12  per  cent.,  has  been  enacted  by 
the  state  of  Louisiana,  and  is  also  inserted  in  the  charter  of  the 
Bank  of  the  United  States.  Another  great  guarantee  against 
improper  management,  is  the  obligation  to  make  and  publish 
annual  statements  of  the  situation  of  the  banks.  The  mystery 
with  which  it  was  formerly  thought  necessary  to  conceal  the 
operations  of  those  institutions,  has  been  one  of  the  most  prolific 
causes  of  erroneous  opinions  on  that  subject,  and  of  mismanage- 
ment on  their  part.  It  is  highly  desirable  that  this  measure 
should  be  adopted  in  the  states  where  those  returns  are  not  yet 
made  obligatory.  The  annual  statements  of  the  Bank  of  the 
United  States,  and  of  the  banks  of  all  the  New-England  states, 
of  Pennsylvania,  Virginia,  Georgia,  and  others,  to  Congress, 
and  to  the  states  respectively,  have  in  no  instance  injured  any 
institution  that  was  properly  administered.  Publicity  is,  in  most 
cases,  one  of  the  best  checks  which  can  be  devised :  it  inspires 

*  See  Note  C. 


BANKS  AND  CURRENCY.  71 

confidence,  and  strengthens  credit ;  whilst  concealment  begets 
distrust,  and  often  engenders  unjust  suspicions. 

There  is  still  another  measure,  better  calculated  perhaps 
than  any  other,  to  give  complete  security  against  the  danger  of 
insolvency.  It  has  been  already  observed,  that  the  original 
capital  of  the  Bank  of  England,  amounting  to  more  than  four- 
teen millions  sterling,  has  been  loaned  to  government,  and,  re- 
maining in  its  hands,  affords  the  best  security  to  the  holders  of 
notes  and  to  depositors.  The  propriety  of  extending  a  similar 
provision  to  country  banks  has  been  strongly  urged  in  England ; 
and  the  same  measure,  with  respect  to  our  banks,  generally, 
has  also  been  suggested.  It  is  quite  practicable,  and  seems. un- 
objectionable in  a  country  possessed  of  so  large  a  capital  as  Eng- 
land, and  where  the  large  amount  of  public  debt  would  enable 
the  banks  to  comply  with  the  condition  without  any  difficulty. 
But  this  might  not  be  practicable  here,  where  the  banking 
capital  is  much  larger  than  the  amount  of  all  other  public 
stocks,  and  we  apprehend  that  mortgages  on  real  estate  must, 
if  such  provision  becomes  general,  be  resorted  to  for  want  of 
such  stocks.  We  must  also  refer  to  our  former  observations 
respecting  the  nature  of  our  banking  capital.  Should  this  be 
permanently  vested  in  mortgages  or  stocks,  the  accommodations 
which  the  banks  afford  to  individuals  might  be  too  much  cur- 
tailed. If  these  objections  can  be  removed,  the  plan  proposed 
would  give  to  the  banking  system  of  the  United  States  a  so- 
lidity, and  inspire  a  confidence,  which  it  cannot  otherwise  pos- 
sess. 


The  constitutional  powers  of  Congress  on  the  subject,  are  the 
next  and  principal  object  of  inquiry. 

We  have  already  adverted  to  the  provisions  of  the  Constitu- 
tion, which  declare,  that  no  state  shall  either  coin  money,  emit 
bills  of  credit,  make  any  thing  but  gold  and  silver  coins  a  ten- 
der in  payment  of  debts,  or  pass  any  law  impairing  the  obliga- 
tion of  contracts,  and  which  vest  in  Congress  the  exclusive  power 
to  coin  money,  and  to  regulate  the  value  thereof,  and  of  foreign 
coin.  It  was  obviously  the  object  of  the  Constitution  to  consoli- 
date the  United  States  into  one  nation,  so  far  as  regarded  all 
their  relations  with  foreign  countries,  and  that  the  internal 
powers  of  the  general  government  should  be  applied  only  to  ob- 
jects necessary  for  that  purpose,  or  to  those  few  which  were 
deemed  essential  to  the  prosperity  of  the  country,  and  to  the 
general  convenience  of  the  people  of  the  several  states.  Amongst 
the  objects  thus  selected,  were  the  power  to  regulate  commerce 
among  the  several  states,  and  the  control  over  the  monetary 
system  of  the  country. 


72  BANKS  AND  CURRENCY. 

This  last-mentioned  power  is,  and  has  ever  been,  one  of  pri- 
mary importance.  It  is  for  want  of  such  general  power,  that 
Germany  has  always  been  inundated  with  coins  often  debased, 
and  varying  from  state  to  state  in  standard  and  denomination : 
the  same  defect  was  found  in  the  former  United  Provinces  of 
the  Netherlands:  and  the  banks  of  deposit  of  Hamburg  and 
Amsterdam,  were  originally  established  for  the  purpose  of  cor- 
recting that  evil.  Even  under  the  articles  of  confederation, 
Congress  had  already  the  sole  and  exclusive  right  and  power  of 
regulating  the  alloy  and  value  of  coins  struck  by  their  own  au- 
thority, or  by  that  of  the  respective  states.  It  was  on  a  most 
deliberate  view  of  the  subject,  that  the  same  powers  were  con- 
firmed and  enlarged  by  the  Constitution,  and  the  individual 
states  excluded  from  any  participation,  which  might  interfere 
with  the  controlling  power  of  the  general  government.  With 
the  exception  of  those  which  are  connected  with  the  foreign  re- 
lations of  the  United  States,  either  in  war  or  in  peace,  there  are 
no  powers  more  expressly  and  exclusively  vested  in  Congress,  of 
a  less  disputable  nature,  or  of  greater  general  utility,  than  those 
on  the  subject  of  currency.  Arbitrary  governments  have,  at 
various  times,  in  order  to  defraud  their  creditors,  debased  the 
coin,  whilst  they  preserved  its  denomination,  and  thus  subverted 
the  standard  of  value  by  which  the  payment  of  public  and  pri- 
vate debts,  and  the  performance  of  contracts,  ought  to  have 
been  regulated.  This  flagrant  mode  of  violating  public  faith 
has  been  long  proscribed  by  public  opinion.  Governments  have, 
in  modern  times,  substituted  for  the  same  purpose  issues  of  paper 
money,  gradually  increasing  in  amount,  and  decreasing  in  value. 
It  was  to  guard  against  those  evils,  that  the  provisions  in  the 
Constitution  on  that  subject  were  intended :  and  it  is  the  duty, 
not  less  than  the  right,  of  the  United  States,  to  carry  them  into 
effect. 

The  first  paragraph  of  the  eighth  section  of  the  first  article, 
provides  that  Congress  shall  have  power  "  to  lay  and  collect 
taxes,  duties,  imposts,  and  excises,  to  pay  the  debts  and  provide 
for  the  common  defence  and  general  welfare  of  the  United 
States;  but  ail  duties,  imposts,  and  excises,  shall  be  uniform 
throughout  the  United  States." 

It  has  sometimes  been  vaguely  asserted,  though,  as  we  be- 
lieve, never  seriously  contended,  that  the  words  "  to  provide  for 
the  common  defence  and  general  welfare,"  were  intended,  and 
might  be  construed,  as  a  distinct  and  specific  power  given  to 
Congress,  or,  in  other  words,  that  that  body  was  thereby  in- 
vested with  a  sweeping  power,  to  embrace  within  its  jurisdic- 
tion any  object  whatever,  which  it  might  deem  conducive  to 
the  general  welfare  of  the  United  States.  This  doctrine  is  ob- 
viously untenable,  subversive  of  every  barrier  in  the  Constitu- 
tion which  guards  the  rights  of  the  states  or  of  the  people,  ex- 


BANKS  AND  CURRENCY.  73 

pressly  contradicted  by  the  tenth  amendment,  which  provides, 
that  the  powers  not  delegated  to  the  United  States  by  the  Con- 
stitution, nor  prohibited  by  it  to  the  states,  are  reserved  to  the 
states  respectively,  or  to  the  people ;  and  tantamount  to  an  as- 
sertion, that  there  is  no  Constitution,  and  that  Congress  is  om- 
nipotent. Mr.  Jefferson  stigmatizes  this  construction  as  «'  a 
grammatical  quibble,  which  has  countenanced  the  general  gov- 
ernment in  a  claim  of  universal  power.  For,  (he  adds,)  in  the 
phrase,  to  lay  taxes,  to  pay  the  debts  and  provide  for  the  general 
welfare,  it  is  a  mere  question  of  syntax,  whether  the  two  last 
infinitives  are  governed  by  the  first,  or  are  distinct  and  co-ordi- 
nate powers ;  a  question  unequivocally  decided  by  the  exact 
definition  of  powers,  immediately  following." 

The  words  "  to  provide  for  the  common  defence  and  general 
welfare  of  the  United  States,"  are  as  obligatory  as  any  other 
part  of  the  Constitution ;  they  cannot  be  expunged,  and  must 
be  so  construed  as  to  be  effective.  Mr.  Jefferson  did  not  deny 
this,  which  is  indeed  undeniable ;  and  he  only  contended,  that 
the  words  did  not  convey  a  distinct  power,  but  were  governed 
by  the  preceding  infinitive ;  that  is  to  say,  that  this  clause  in  the 
Constitution,  instead  of  giving  to  Congress  the  three  distinct  pow- 
ers, 1st,  to  lay  taxes,  &c.,  2dly  to  pay  the  debts,  3dly  to  provide 
for  the  common  defence  and  general  welfare  of  the  United 
States,  gave  only  that  "  to  lay  and  collect  taxes,  duties,  imposts, 
and  excises,  in  order  to  pay  the  debts  and  provide  for  the  com- 
mon defence  and  general  welfare  of  the  United  States."  He 
states  the  question  as  one  of  syntax,  susceptible  of  only  two  con- 
structions; one  which  wrould  give,  as  a  distinct,  a  sweeping  power 
inconsistent  with  the  spirit  and  other  express  provisions  of  the 
Constitution,  and  which  he  accordingly  rejects ;  the  other,  which 
he  adopts,  and  which  admits,  but  confines  the  application  of  the 
words  "  to  provide  for  the  general  welfare,"  to  the  only  power 
given  by  that  clause,  viz.  that  of  laying  taxes,  duties,  &c. 

This  appears  to  have  been  the  construction  universally  given 
to  that  clause  of  the  Constitution,  by  its  framers  and  contempo- 
raneous expounders.  Mr.  Hamilton,  though  widely  differing  in 
another  respect  from  Mr.  Jefferson  in  his  construction  of  this 
clause,  agrees  with  him  in  limiting  the  application  of  the  word* 
"  to  provide  for  the  general  welfare,"  to  the  express  power  given 
by  the  first  sentence  of  the  clause.  In  his  report  on  manufac- 
tures, he  contends  for  the  power  of  Congress  to  allow  bounties 
for  their  encouragement,  and,  after  having  stated  the  three 
qualifications  of  the  power  to  lay  taxes,  viz.  1st,  that  duties,  im- 
posts, and  excises,  should  be  uniform  throughout  the  United 
States ;  2nd,  that  no  direct  tax  should  be  lard  unless  in  propor- 
tion to  the  census ;  3d,  that  no  duty  should  be  laid  on  exports ; 
he  argues  on  the  constitutional  question  in  the  following  word* : 


74  BANKS  AND  CURRENCY. 

"  These  three  qualifications  excepted,  the  power  to  raise  money  is  plenary  and 
indefinite ;  and  the  objects  to  which  it  may  be  appropriated,  are  no  less  compre- 
hensive than  the  payment  of  the  public  debts  and  the  providing  for  the  common 
defence  and  general  welfare.  The  terms  '  general  welfare,'  were  doubtless  in- 
tended  to  signify  more  than  was  expressed  or  imported  in  those  which  preceded ; 
otherwise  numerous  exigencies,  incident  to  the  affairs  of  a  nation,  would  have 
been  left  without  a  provision.  The  phrase  is  as  comprehensive  as  any  that  could 
have  been  used ;  because  it  was  not  fit  that  the  constitutional  authority  of  the 
Union  to  appropriate  its  revenues,  should  have  been  restricted  within  narrower 
limits  than  the  '  general  welfare ;'  and  because  this  necessarily  embraces  a  vast 
variety  of  particulars,  which  are  susceptible  neither  of  specification  nor  of  defi- 
nition." 

"  It  is  therefore  of  necessity  left  to  the  discretion  of  the  national  legislature, 
to  pronounce  upon  the  objects  which  concern  the  general  welfare,  and  for  which, 
under  that  description,  an  appropriation  of  money  is  requisite  and  proper.  And 
there  seems  to  be  no  room  for  a  doubt,  that  whatever  concerns  the  general  inter- 
ests of  learning,  of  agriculture,  of  manufactures,  and  of  commerce,  are  within 
the  sphere  of  the  national  councils,  as  far  as  regards  an  application  of  money. 

"  The  only  qualification  of  the  generality  of  the  phrase  in  question,  which  seems 
to  be  admissible,  is  this ;  that  the  object  to  which  an  appropriation  of  money  is 
to  be  made,  be  general  and  not  local ;  its  operation  extending,  in  fact,  or  by  pos- 
sibility, throughout  the  Union,  and  not  being  confined  to  a  particular  spot." 

"  No  objection  ought  to  arise  to  this  construction,  from  the  supposition  that  it 
would  imply  a  power  to  do  whatever  else  should  appear  to  Congress  conducive  to 
the  general  welfare.  A  power  to  appropriate  money  with  this  latitude,  which  is 
granted  too,  in  express  terms,  would  not  carry  a  power  to  any  other  thing  not 
authorized  in  the  Constitution,  either  expressly  or  by  fair  implication." 

Mr.  Hamilton  insisted  that  the  power  to  lay  and  collect  taxes 
and  duties,  implied  that  of  appropriating  the  money  thus  raised^ 
to  any  object  which  Congress  might  deem  conducive  to  "  the 
general  welfare."  But  he  confines  throughout  the  application 
of  those  words  to  the  power  given,  as  he  understood  it,  by  the 
first  sentence  of  the  clause.  Mr.  Jefferson,  who  agreed  with 
him  in  that  respect,  denied  altogether  that  the  power  to  lay 
taxes  implied  that  of  applying  the  money  thus  raised  to  objects 
conducive  to  the  general  welfare.  It  cannot  be  objected  to  this 
construction,  which  is  the  most  literal,  that  the  words  "  for  the 
general  welfare"  are  thereby  rendered  of  no  effect.  For  there 
are  several  cases,  in  which  the  laying  a  tax  or  duty  does  alone 
effect  the  object  in  view,  without  the  aid  of  an  appropriation 
or  of  any  other  distinct  act  of  the  legislature.  On  that  point, 
however,  and  on  that  alone,  they  differed.  But  it  is  foreign  to 
the  object  now  under  consideration,  and  we  do  not  mean  to  dis- 
cuss it.  All  that  is  necessary  for  us  is,  that,  as  admitted  by  both, 
the  power  to  lay  duties  and  taxes,  is  vested  in  Congress,  and  may 
be  exercised,  to  provide  (or,  in  order  to  provide)  for  the  general 
welfare  of  the  United  States,  without  any  other  limitation  than 
the  three  qualifications  specified  by  the  Constitution,  and  above 
stated. 

It  has  indeed  been  lately  contended  by  some  distinguished 
citizens,  that  the  words  "general  welfare,"  referred  only  to  the 
powers  expressly  vested  in  Congress  by  the  Constitution :  or,  in 
other  words,  that  the  power  to  lay  duties  and  taxes  could  not  be 
exercised  but  for  the  purpose  of  carrying  into  effect  some  of 


BANKS  AND  CURRENCY.  75 

those  specific  powers.  It  seems  to  us,  that  this,  if  intended, 
would  have  been  distinctly  expressed,  instead  of  using  the  words 
•"  general  welfare."  And  although  it  is  undeniable,  that  a  con- 
structive power  cannot  be  legitimately  claimed,  unless  neces- 
sary and  proper  for  carrying  into  execution,  or  fairly  implied 
in,  a  power  expressly  delegated ;  we  do  not  perceive  why  it 
should  be  necessary,  in  order  to  justify  the  exercise  of  a  power 
expressly  given,  that  it  should  be  exercised  in  reference  to  an- 
other similar  power.  But  we  do  not  mean  to  discuss  this  ques- 
tion, which  is  also  foreign  to  our  object.  Allowing,  for  the  sake 
of  argument,  the  validity  of  the  objection,  it  does  not  apply  to 
cases  where  the  object,  in  reference  to  which  the  duty  or  tax  is 
laid,  is  clearly  embraced  within  the  powers  of  the  general  gov- 
ernment. Although,  because  the  power  to  protect  manufactures 
is  not  expressly  vested  in  Congress,  that  to  lay  taxes  in  order  to 
effect  that  object  should  be  denied,  the  power  of  laying  a  tax 
or  duty,  for  the  purpose  of  carrying  into  effect  an  express  pro- 
vision of  the  Constitution,  would  still  be  undeniable. 

Congress  has  the  power  to  lay  stamp  duties  on  notes,  on  bank 
notes,  and  on  any  description  of  bank  notes.  That  power  has 
already  been  exercised ;  and  the  duties  may  be  laid  to  such  an 
amount,  and  in  such  a  manner,  as  may  be  necessary  to  effect  the 
object  intended.  This  object  is  not  merely  to  provide  generally 
for  the  general  welfare,  but  to  carry  into  effect,  in  conformity 
with  the  last  paragraph  of  the  eighth  section  of  the  first  article, 
those  several  and  express  provisions  of  the  Constitution,  which 
vest  in  Congress  exclusively  the  control  over  the  monetary  sys- 
tem of  the  United  States,  and  more  particularly  those  which 
imply  the  necessity  of  a  uniform  currency.  The  exercise  of  the 
power  for  that  object  is  free  of  any  constitutional  objection,  pro- 
vided the  duties  thus  laid  shall  be  uniform,  and  applied  to  the 
Bank  of  the  United  States  as  well  as  to  the  state  banks.  The  act 
of  laying  and  collecting  the  duties,  which  is  expressly  granted, 
is  alone  sufficient  to  effect  the  object.  As  no  appropriation  of 
money  is  wanted  for  that  purpose,  the  exercise  of  power  which 
is  required,  is  purely  that  of  laying  duties;  and  it  is  not  liable 
to  the  objection,  that  to  assert  that  the  authority  to  lay  taxes 
implies  that  of  appropriating  the  proceeds,  is  a  forced  construc- 
tion. It  is  equally  free  of  any  objection  derived  from  any  pre- 
sumed meaning  of  the  words  "  general  welfare,"  since  the  power 
to  lay  duties  will,  in  this  instance,  be  exercised,  in  order  to  carry 
into  effect  several  express  provisions  of  the  Constitution,  having 
the  same  object  in  view.  Congress  may,  if  it  deems  it  proper, 
lay  a  stamp  duty  on  small  notes,  which  will  put  an  end  to  their 
circulation.  It  may  lay  such  a  duty  on  all  bank  notes,  as  would 
convert  all  the  banks  into  banks  of  discount  and  deposit  only, 
annihilate  the  paper  currency,  and  render  a  Bank  of  the  United 
States  unnecessary  in  reference  to  that  object.  But  if  this  last 


76  BANKS  AND  CURRENCY. 

measure  should  be  deemed  pernicious,  or  prove  impracticable, 
Congress  must  resort  to  other  and  milder  means  of  regulating 
the  currency  of  the  country.  The  Bank  of  the  United  States, 
as  has  already  been  shown,  was  established  for  that  express  pur- 
pose. 

An  act  incorporating  a  bank,  is  not  an  act  either  to  raise  or 
appropriate  money.  The  power  to  establish  the  bank  cannot, 
in  any  way,  be  founded  on  that  clause  of  the  Constitution  which 
has  reference  to  the  general  welfare  of  the  United  States.  It  is 
sanctioned  exclusively  by  that  clause  which  gives  to  Congress 
power  to  make  all  laws,  which  shall  be  necessary  and  proper 
for  carrying  into  execution  any  of  the  powers  vested  in  the 
government  of  the  United  States.  And  the  first  object  of  in- 
quiry is  the  meaning  of  the  words  "  necessary  and  proper"  in 
that  clause. 

We  are  aware,  that  it  has  at  times  been  suggested  that  the 
word  "  necessary."  in  its  strict  sense,  means  "  that  without 
which  the  specific  power  cannot  be  carried  into  effect,"  and 
ought  to  be  so  construed.  If  appeal  be  made  to  verbal  criticism, 
it  may  be  answered,  that  if  such  was  the  meaning  of  the  word 
"  necessary,"  in  that  sentence,  the  word  "  proper"  would  not 
have  been  added ;  since  that  which  is  necessary  in  that  strict 
sense  is  of  necessity  proper.  This  last  expression  must,  there- 
fore, be  taken  in  connexion  with  the  first ;  and  since  it  was  con- 
templated, that  what  was  called  necessary  might  be  proper  or 
improper,  the  words  "  laws  necessary  and  proper"  do  not  ap- 
pear to  have  been  intended  in  that  most  limited  sense,  which 
implies  absolute  impossibility  of  effecting  the  object  without  the 
law,  but  to  mean  such  laws  as  are  fairly  intended,  and  highly 
useful  and  important  for  that  purpose.  We  believe  this  to  be  the 
fair,  and  to  have  been  the  uniform  construction  of  the  Constitu- 
tion, and  that  indeed  without  which  it  could  not  have  been  car- 
ried into  effect.  In  order  to  prove  that  this  has  ever  been  deem- 
ed the  natural  and  clear  construction,  we  will  not  resort  to  the 
establishment  of  light-houses,  or  to  other  numerous  precedents, 
the  authority  of  which  may  be  disputed.  We  will  appeal  to  the 
most  general  and  important  law  of  the  United  States,  such  as  it 
was  enacted  from  the  first  organization  of  the  government  un- 
der the  Constitution,  and  to  a  provision  in  it,  which,  under  its 
various  other  modifications,  has  uninterruptedly,  and  without 
any  constitutional  objection,  remained  in  force  to  this  day. 

The  laws  to  lay  and  collect  duties  on  imports  require,  and 
have  always  required,  a  variety  of  oaths,  and  particularly  that 
of  the  importers  or  consignees,  with  respect  to  the  correctness 
of  the  invoices  of  goods  imported,  both  as  to  quantity  and  as 
to  cost  or  value.  Yet  this  provision,  however  useful  and  im- 
portant, is  not  so  absolutely  necessary,  in  that  strict  sense  of 
the  word,  as  that  the  laws  could  not  possibly  be  carried  into  ef- 


BANKS  AND  CURRENCY.  77 

feet  without  it.  There  are  countries,  France  for  example,  where 
those  duties  are  efficiently  collected  without  the  assistance  of 
similar  oaths.  This  may  be  done  at  least  as  effectually  by  an  ap- 
praisement of  the  merchandise,  as  by  resorting  to  the  oa.ths  of 
the  parties.  In  point  of  fact,  there  has  always  been  a  discretion- 
ary power  to  appraise,  which  has  lately  been  enlarged.  Since  it 
is  on  that  provision,  and  not  on  the  oath,  that  the  ultimate  re- 
liance for  the  faithful  collection  of  the  duties  is  placed,  those 
duties  might  be  collected  without  the  assistance  of  oaths,  by  sub- 
stituting in  every  instance  an  appraisement  or  valuation.  Oaths 
are  not,  therefore,  necessary  for  the  collection  of  duties,  in  that 
strict  sense  which  is  contended  for :  they  are  not  that,  without 
which  the  duties  could  not  be  collected.  The  observation  indeed 
applies  to  various  other  provisions  of  the  revenue  laws.  Any 
one  who  will  $ve  them  a  perusal,  will  find  several  implying 
powers  not  specially  vested  in  Congress,  the  necessity  of  which 
was  not  absolute,  and  without  which  the  object  of  the  law  might 
still  have  been  effected.  The  oaths  and  various  other  provisions 
have  been  resorted  to,  as  means  only  highly  useful,  important, 
and  proper,  but  not  as  being  of  absolute  necessity  for  carrying 
the  law  into  effect* 

Whenever  it  becomes  the  duty  of  Congress  to  carry  into  ef- 
fect any  of  the  powers  expressly  defined  by  the  Constitution,  it 
will  generally  be  found  that  there  are  several  means  to  effect  the 
object.  In  that  case,  and  whenever  there  is  an  option,  each  of 
the  means  proposed  ought  not  to  be  successively  objected  to,  as 
not  being  strictly  necessary  because  other  means  might  be  re- 
sorted to,  since  this  mode  of  arguing  would  defeat  the  object 
intended,  and  prevent  the  passage  of  any  law  for  carrying  into 
effect  the  power,  which  it  was  the  duty  of  Congress  to  execute. 
If  every  provision  of  a  revenue  law  was  successively  opposed 
on  that  ground,  no  efficient  revenue  law  could  be  passed.  In  the 
present  case,  it  is  proposed  to  resort,  either  to  a  stamp  duty  or 
to  a  Bank  of  the  United  States,  in  order  to  regulate  the  cur- 
rency. Unless  some  other  equally  efficient  mode  can  be  sug- 
gested, this  important  object  will  be  defeated,  if  both  means  are 
successively  rejected,  as  not  strictly  necessary.  But,  on  the 
other  hand,  the  means  proposed  for  carrying  into  effect  any  spe- 
cial or  expressed  power  vested  in  Congress,  should  be  highly 
useful  and  important,  having  clearly  and  bona  fide  that  object  in 
view  which  is  the  avowed  purpose,  and  not  be  intended,  under 
color  of  executing  a  certain  special  power,  for  the  purpose  of 
effecting  another  object. 

It  was  on  this  ground,  that  the  former  Bank  of  the  United 

*  The  opinion  of  the  Supreme  Court,  in  the  cose  of  M'Culloch  vs.  State  of  Mary- 
land, had  not  been  seen  by  the  writer  of  this  essay,  when  it  was  committed  to  the 
press :  and  the  important  inference,  drawn  from  the  use  of  the  words  "  absolutely 
necessary,"  in  another  clause  of  the  Constitution,  had  escaped  his  notice. 


78  BANKS  AND  CURRENCY. 

States  was  at  first  opposed.  That  Bank  had  not  been  proposed 
for  the  express  purpose  of  regulating  the  currency,  but  as  inci- 
.dent  to  the  powers  of  regulating  commerce,  of  collecting  the 
revenue,  of  the  safe  keeping  of  public  moneys,  and  generally, 
of  carrying  on  the  operations  of  the  Treasury.  There,  had  been 
at  that  time  but  three  banks  established  in  the  United  States ; 
their  operations  were  confined  within  a  very  narrow  sphere; 
there  had  been  no  experience  in  the  United  States  of  the  utility 
of  a  bank  in  assisting  the  operations  of  government,  but  that 
which,  during  a  short  time,  had  been  afforded  by  the  Bank  of 
North  America,  incorporated,  in  the  first  instance,  by  Congress, 
under  the  articles  of  confederation.  The  Bank  of  the  United 
States  was  considered  by  its  opponents,  as  not  being  intended 
for  the  purpose  alleged,  but  as  having  for  its  object  the  consoli- 
dation of  a  moneyed  aristocracy,  and  to  further  the  views  at 
that  time  ascribed  to  a  certain  party  and  to  its  presumed  leader. 
And  the  fears  then  excited  respecting  that  object,  and  the  sup- 
posed influence  of  the  Bank  in  promoting  it,  though  long  since 
dissipated,  have  left  recollections  and  impressions  which  may 
still  have  some  effect  on  public  opinion  in  relation  to  the  consti- 
tutional question. 

Experience,  however,  has  since  confirmed  the  great  utility  and 
importance  of  a  Bank  of  the  United  States,  in  its  connexion  with 
the  Treasury.  The  first  great  advantage  derived  from  it,  consists 
in  the  safe  keeping  of  the  public  moneys,  securing,  in  the  first 
instance,  the  immediate  payment  of  those  received  by  the  prin- 
cipal collectors,  and  affording  a  constant  check  on  all  their  trans- 
actions ;  and  afterwards  rendering  a  defalcation  in  the  moneys 
once  paid,  and  whilst  nominally  in  the  Treasury,  absolutely  im- 
possible. The  next  and  not  less  important  benefit  is  to  be  found 
in  the  perfect  facility  with  which  all  the  public  payments  are 
made  by  checks,  or  Treasury  drafts,  payable  at  any  place  where 
the  Bank  has  an  office ;  all  those  who  have  demands  against  gov- 
ernment, are  paid  in  the  place  most  convenient  to  them ;  and 
the  public  moneys  are  transferred,  through  our  extensive  terri- 
tory, at  a  moment's  warning,  without  any  risk  or  expense,  to  the 
places  most  remote  from  those  of  collection,  and  wherever  pub- 
lic exigencies  may  require.  From  the  year  1791  to  this  day, 
the  operations  of  the  Treasury  have,  without  interruption,  been 
carried  on  through  the  medium  of  banks;  during  the  years  1811 
to  1816,  through  the  state  banks;  before  and  since,  through  the 
Bank  of  the  United  States.  Every  individual  who  has  been  at 
the  head  of  that  department,  and,  as  we  believe,  every  officer 
connected  with  it,  has  been  made  sensible  of  the  great  difficul- 
ties, that  must  be  encountered  without  the  assistance  of  those 
institutions,  and  of  the  comparative  ease  and  great  additional 
security  to  the  public,  with  which  their  public  duties  are  per- 
formed through  the  means  of  the  banks.  To  insist  that  the  ope- 


BANKS  AND  CURRENCY.  79 

rations  of  the  Treasury  may  be  carried  on  with  equal  facility 
and  safety,  through  the  aid  of  the  state  banks,  without  the  in- 
terposition of  a  Bank  of  the  United  States,  would  be  contrary  to 
fact  and  experience.  That  great  assistance  was  received  from 
the  state  banks,  while  there  was  no  other,  has  always  been  freely 
and  cheerfully  acknowledged.  But  it  is  impossible,  in  the  nature 
of  things,  that  the  necessary  concert  could  be  made  to  exist  be- 
tween thirty  different  institutions;  and  in  some  instances,  heavy 
pecuniary  losses,  well  known  at  the  seat  of  government,  have 
been  experienced.  To  admit,  however,  that  state  banks  are  ne- 
cessary for  that  purpose,  is  to  give  up  the  question.  To  admit 
that  banks  are  indispensable  for  carrying  into  effect  the  legiti- 
mate operations  of  government,  is  to  admit  that  Congress  has 
the  power  to  establish  a  bank.  The  general  government  is  not 
made  by  the  Constitution  to  depend,  for  carrying  into  effect 
powers  vested  in  it,  on  the  uncertain  aid  of  institutions,  created 
by  other  authorities,  and  which  are  not  at  all  under  its  control. 
It  is  expressly  authorized  to  carry  those  powers  into  effect  by 
its  own  means,  by  passing  the  laws  necessary  and  proper  for 
that  purpose,  and  in  this  instance,  by  establishing  its  own  bank, 
instead  of  being  obliged  to  resort  to  those  which  derive  their 
existence  from  another  source,  and  are  under  the  exclusive  con- 
trol of  the  different  states,  by  which  they  have  been  estab- 
lished. 

It  must  at  the  same  time  be  acknowledged,  that,  inasmuch  as 
the  revenue  may  be  collected,  and  the  public  moneys  may  be 
kept  in  public  chests,  and  transferred  to  distant  places  without 
the  assistance  of  banks,  and  as  all  this  was  once  done  in  the 
United  States,  and  continues  to  be  done  in  several  countries, 
without  any  public  bank,  it  cannot  be  asserted,  that  those  insti- 
tutions are  absolutely  necessary  for  those  purposes,  if  we  take 
the  word  "  necessary"  in  that  strict  sense  which  has  been  al- 
luded to.  All  this  may  be  done,  though  with  a  greater  risk,, 
and  in  a  more  inconvenient  and  expensive  manner.  Public 
chests  might  be  established,  and  public  receivers,  or  sub-trea- 
surers, might  be  appointed  in  the  same  places  where  there  are 
now  offices  of  the  Bank  of  the  United  States,  and  specie  might 
be  transported  from  place  to  place,  as  the  public  service  requir- 
ed it,  or  inland  bills  of  exchange  purchased  from  individuals.* 

*  With  the  exception  of  the  power  of  receiving  private  deposits,  the  object  of 
which  provision  is  not  perceived,  this  is  precisely  the  species  of  National  Bank, 
which  has  been  suggested  in  the  President's  last  message.  The  question,  whether 
the  purchase  of  drafts  would,  as  we  think,  be  a  charge  on  the  Treasury,  or  prove,  as 
seems  to  be  expected,  a  source  of  profit,  is  one  of  secondary  importance.  It  is  suffi- 
cient to  observe,  that  the  issues  of  the  state  banks  could  not,  nor  indeed  is  it  antici- 
pated in  the  message  that  they  would,  be  checked  by  this  plan.  It  would  not,  there- 
fore, effect  the  great  object  contemplated  by  the  Constitution,  to  carry  which  into 
effect  is  enjoined  by  that  instrument,  and  for  which  we  principally  contend,  viz.  that 
of  securing  a  sound  and  uniform  currency. 


80  BANKS  AND  CURRENCY. 

The  superior  security  and  convenience  afforded  by  the  bank,  in 
the  fiscal  operations  of  government,  may  not  be  considered  as 
sufficient  to  make  its  establishment  constitutional,  in  the  opinion 
of  those  who  construe  the  word  "  necessary"  in  that  strict  sense. 

But  it  is  far  from  being  on  that  ground  alone,  that  the  ques- 
tion of  constitutionality  is  now  placed.  It  was  not  at  all  antici- 
pated, at  the  time  when  the  former  Bank  of  the  United  States 
was  first  proposed,  and  when  constitutional  objections  were  rais- 
ed against  it,  that  bank  notes  issued  by  multiplied  state  banks, 
gradually  superseding  the  use  of  gold  and  silver,  would  become 
the  general  currency  of  the  country.  The  effect  of  the  few 
banks  then  existing,  had  not  been  felt  beyond  the  three  cities 
where  they  had  been  established.  The  states  were  forbidden  by 
the  Constitution  to  issue  bills  of  credit :  bank  notes  are  bills  of 
credit  to  all  intents  and  purposes ;  and  the  state  could  not  do, 
through  others,  what  it  was  not  authorized  to  do  itself:  but  the 
bank  notes,  not  being  issued  on  the  credit  of  the  states,  nor  guar- 
antied by  them,  were  not  considered  as  being,  under  the  Con- 
stitution, bills  of  credit  emitted  by  the  states.  Subsequent  events 
have  shown,  that  the  notes  of  state  banks,  pervading  the  whole 
country,  might  produce  the  very  effect  which  the  Constitution 
had  intended  to  prevent,  by  prohibiting  the  emission  of  bills  of 
credit  by  any  state.  The  injustice  to  individuals,  the  embar- 
rassments of  government,  the  depreciation  of  the  currency,  its 
want  of  uniformity,  the  moral  necessity  imposed  on  the  commu- 
nity, either  to  receive  that  unsound  currency,  or  to  suspend 
every  payment,  purchase,  sale,  or  other  transaction,  incident  to 
the  wants  of  society,  all  the  evils  which  followed  the  suspension 
of  specie  payments,  have  been  as  great,  if  not  greater,  than 
those  which  might  have  been  inflicted  by  a  paper  currency, 
issued  under  the  authority  of  any  state.  We  have  already  ad- 
verted to  the  several  provisions  of  the  Constitution,  which  gave 
to  Congress  the  right,  and  imposed  on  it  the  duty  to  provide  a 
remedy ;  but  there  is  one  which  deserves  special  consideration. 

Whatever  consequences  may  have  attended  the  suspension 
of  specie  payments  in  Great  Britain,  there  still  remained  one 
currency  which  regulated  all  the  others.  All  the  country  bank- 
ers were  compelled  to  pay  their  own  notes,  if  not  in  specie,  at 
least  in  notes  of  the  Bank  of  England.  These  notes  were,  as  a 
standard  of  value,  substituted  for  gold :  and,  if  the  currency  of 
the  country  was  depreciated,  and  fluctuating  in  value  from 
time  to  time,  it  was  at  the  same  time  uniform  throughout  the 
country.  There  was  but  one  currency  for  the  whole,  and 
every  variation  in  its  value  was  uniform  as  to  places,  and  at 
the  same  moment  operated  in  the  same  manner  everywhere. 
But  the  currency  of  the  United  States,  or,  to  speak  more  cor- 
rectly, of  the  several  states,  varied,  during  the  suspension  of 
specie  payments,  not  only  from  time  to  time,  but  at  the  same 


BANKS  AND  CURRENCY.  81 


time  from  state  to  state,  and  in  the  same  state  from  place  to 
place.  In  New-England,  where  those  payments  were  not  dis- 
continued, the  currency  was  equal  in  value  to  specie :  it  was, 
at  the  same  time,  at  a  discount  of  seven  per  cent,  in  New- York 
and  Charleston,  of  fifteen  in  Philadelphia,  of  twenty  and  twenty- 
five  in  Baltimore  and  Washington,  with  every  other  possible 
variation  in  other  places  and  states. 

The  currency  of  the  United  States,  in  which  the  public  and 
private  debts  were  paid,  and  the  public  revenue  collected,  not 
only  was  generally  depreciated,  but  was  also  defective  in  respect 
to  uniformity.  Independent  of  all  the  other  clauses  in  the  Con- 
stitution which  relate  to  that  subject,  it  is  specially  provided,  1st, 
that  all  duties,  imposts,  and  excises,  shall  be  uniform  through- 
out the  United  States ;  2d,  that  representative  and  direct  taxes 
shall  be  apportioned  among  the  several  states,  according  to  their 
respective  numbers,  to  be  determined  by  the  rule  therein  speci- 
fied ;  and  that  no  capitation  or  other  direct  tax  shall  be  laid, 
unless  in  proportion  to  the  enumeration.  Both  these  provisions 
were  violated  whilst  the  suspension  of  specie  payments  con- 
tinued. It  is  clear,  that  after  the  quota  of  the  direct  tax  of  each 
state  had  been  determined,  according  to  the  rule  prescribed  by 
the  Constitution,  it  was  substantially  changed  by  being  collected 
in  currencies  differing  in  value  in  the  several  states.  It  is  not 
less  clear,  that  the  clause  which  prescribes  a  uniformity  of  du- 
ties, imposts,  and  excises,  was  equally  violated  by  collecting 
every  description  of  indirect  duties  and  taxes  in  currencies  of 
different  value.  The  only  remedy  existing  at  that  time,  was 
the  permission  to  pay  direct  and  indirect  taxes  in  treasury  notes. 
But  those  notes  did  not  pervade  every  part  of  the  country  in  the 
same  manner  as  bank  notes ;  they  were  of  too  high  denomina- 
tion to  be  used  in  the  payment  of  almost  any  internal  tax ;  they 
were  liable  also  to  vary  in  value  in  the  different  states;  and 
they  could  operate  as  a  remedy,  only  as  long  as  their  deprecia- 
tion was  greater  than  that  of  the  most  depreciated  notes  in  cir- 
culation. 

We  will  now  ask,  whether,  independent  of  every  other  con- 
sideration, Congress  was  not  authorized  and  bound  to  pass  the 
laws  necessary  and  proper  for  carrying  into  effect,  with  good 
faith,  those  provisions  of  the  Constitution  ?  and  whether  that 
could  or  can  be  done,  in  any  other  manner  than,  either  by  re- 
verting to  a  purely  metallic,  or  by  substituting  a  uniform  paper 
currency  to  that  which  had  proved  so  essentially  defective  in 
that  respect,  and  which,  from  its  not  being  subject  to  one  and 
the  same  control,  is,  and  for  ever  will  be,  liable  to  that  defect  ? 
The  uniformity  of  duties  and  taxes  of  every  description,  whether 
internal  or  external,  direct  or  indirect,  is  an  essential  and  funda- 
mental principle  of  the  Constitution.  It  is  self-evident,  that  that 
uniformity  cannot  be  carried  into  effect  without  a  corresponding 


82  BANKS  AND  CURRENCY. 

uniformity  of  currency.  Without  laws  to  this  effect,  it  is  abso 
lutely  impossible  that  the  taxes  and  duties  should  be  uniform,  as 
the  Constitution  prescribes :  such  laws  are  therefore  necessary 
and  proper,  in  the  most  strict  sense  of  the  words.  There  are  but 
two  means  of  effecting  the  object,  a  metallic,  or  a  uniform  paper 
currency.  Congress  has  the  option  of  either ;  and  either  of  the 
two,  which  may  appear  the  most  eligible,  will  be  strictly  con- 
stitutional, because  strictly  necessary  and  proper  for  carrying 
into  effect  the  object.  If  a  currency  exclusively  metallic  is  pre- 
ferred, the  object  will  be  attained  by  laying  prohibitory  stamp 
duties  on  bank  notes  of  every  description,  and  without  excep- 
tion. If  it  is  deemed  more  eligible,  under  existing  circumstances, 
instead  of  subverting  the  whole  banking  system  of  the  United 
States,  and  depriving  the  community  of  the  accommodations 
which  bank  loans  afford,  to  resort  to  less  harsh  means ;  recourse 
must  be  had  to  such,  as  will  insure  a  currency  sound  and  uni- 
form itself,  and  at  the  same  time  check  and  regulate  that  which 
will  continue  to  constitute  the  greater  part  of  the  currency  of 
the  country. 

Both  those  advantages  were  anticipated  in  the  establishment 
of  the  Bank  of  the  United  States ;  and  it  appears  to  us  that  the 
bank  fulfils  both  those  conditions.  As  respects  the  past,  it  is  a 
matter  of  fact,  that  specie  payments  were  restored  and  have 
been  maintained  through  the  instrumentality  of  that  institution. 
It  gives  a  complete  guarantee,  that  under  any  circumstances, 
its  notes  will  preserve  the  same  uniformity  which  they  now  pos- 
sess. Placed  under  the  control  of  the  general  government,  rely- 
ing for  its  existence  on  the  correctness,  prudence,  and  skill  with 
which  it  shall  be  administered,  perpetually  watched  and  occa- 
sionally checked  by  both  the  Treasury  Department  and  rival 
institutions ;  and  without  a  monopoly,  yet  with  a  capital  and 
resources  adequate  to  the  object  for  which  it  was  established ; 
the  bank  also  affords  the  strongest  security  which  can  be  given 
with  respect  to  paper,  not  only  for  its  ultimate  solvency,  but  also 
for  the  uninterrupted  soundness  of  its  currency.  The  statements 
we  have  given  of  its  progressive  and  present  situation,  show 
how  far  those  expectations  have  heretofore  been  realized. 

Those  statements  also  show,  that  the  Bank  of  the  United 
States,  wherever  its  operations  have  been  extended,  has  effectu- 
ally checked  excessive  issues  on  the  part  of  the  state  banks,  if 
not  in  every  instance,  certainly  in  the  aggregate.  They  had 
been  reduced,  before  the  year  1820,  from  sixty-six  to  less  than 
forty  millions.  At  that  time,  those  of  the  Bank  of  the  United 
States  fell  short  of  four  millions.  The  increased  amount  re- 
quired by  the  increase  of  population  and  wealth  during  the  ten 
ensuing  years,  has  been  supplied  in  a  much  greater  proportion 
by  that  bank  than  by  those  of  the  states.  With  a  treble  capital, 
they  have  added  littie  more  than  eight  millions  to  their  issues. 


BANKS  AND  CURRENCY.  83 

Those  of  the  Bank  of  the  United  States  were  nominally  twelve, 
in  reality  about  eleven  millions  greater  in  November  1829,  than 
in  November  1819.  The  whole  amount  of  the  paper  currency 
has,  during  those  ten  years,  increased  about  forty-five,  and  that 
portion  which  is  issued  by  the  state  banks  only  twenty-two  and 
a  half  per  cent.  We  have  indeed  a  proof,  not  very  acceptable 
perhaps  to  the  bank,  but  conclusive  of  the  fact,  that  it  has  per- 
formed the  office  required  of  it  in  that  respect.  The  general 
complaints,  on  the  part  of  many  of  the  state  banks,  that  they 
are  checked  and  controlled  in  their  operations  by  the  Bank  of 
the  United  States,  that,  to  use  a  common  expression,  it  operates 
as  a  screw,  is  the  best  evidence  that  its  general  operation  is 
such  as  had  been  intended.  It  was  for  that  very  purpose  that 
the  bank  was  established.  We  are  not,  however,  aware  that 
a  single  solvent  bank  has  been  injured  by  that  of  the  United 
States,  though  many  have  undoubtedly  been  restrained  in  the 
extent  of  their  operations,  much  more  than  was  desirable  to 
them.  This  is  certainly  inconvenient  to  some  of  the  banks,  but 
in  its  general  effects  is  a  public  benefit  to  the  community. 

The  best  way  to  judge  whether,  in  performing  that  unpopu- 
lar duty,  the  Bank  of  the  United  States  has  checked  the  opera- 
tions of  the  state  banks  more  than  was  necessary,  and  has  abused, 
in  order  to  enrich  itself  at  their  expense,  the  power  which  was 
given  for  another  purpose,  is  to  compare  their  respective  situa- 
tions in  the  aggregate.  In  order  to  avoid  any  erroneous  infer- 
ence, we  will  put  out  of  question  those  banks  of  which  we  could 
only  make  an  estimate,  and  compare,  with  that  of  the  United 
States,  those  only  of  which  we  have  actual  returns. 

The  profit  of  banks,  beyond  the  interest  on  their  own  capital, 
consists  in  that  which  they  receive  on  the  difference  between 
the  aggregate  of  their  deposits  and  notes  in  circulation,  and  the 
amount  of  specie  in  their  vaults.  We  have  given  the  aggregate 
situation  for  the  end  of  the  year  1829  of  281  banks  with  a  capi- 
tal of  95,003,557  dollars,  the  deposits  and  circulating  notes  of 

which  amounted  together  to $71,706,033 

from  which  deducting  the  specie  in  their  vaults,  -  11,989,643 

leaves  for  the  said  difference, 59,716,390 

or  62.8  per  cent,  on  their  capital. 

The  notes  in  circulation  of  the  Bank  of  the  United  States 
(adding  one  million  for  its  drafts  in  circulation)  amounted  in 
November  1829,  to  $14,042,984,  and  together  with  the  deposits, 

to $28,827,793 

from  which  deducting  the  specie  in  its  vaults,  -     -       7,175,274 

leaves  for  the  difTercnco, 21, 652,5 1U 

or  61.8  on  its  capital. 


84  BANKS  AND  CURRENCY. 

It  is  clear  that  those  state  banks,  taken  in  the  aggregate,  hare 
no  just  reason  to  complain,  since  that  of  the  United  States  im- 
poses no  greater  restraints  on  them  than  on  itself.  It  will  also 
be  perceived  that  it  had  in  specie,  more  than  one-fifth  part  of 
the  aggregate  of  its  notes  in  circulation  and  deposits ;  whilst  the 
state  banks  had  little  more  than  one-sixth ;  and  the  Bank  of  the 
United  States  had  in  addition  a  fund  of  about  one  million  of  dol- 
lars in  Europe.  The  difference  would  have  been  more  striking, 
had  we  taken  a  view  of  the  situation  of  all  the  state  banks,  in- 
cluding those  on  estimate;  for  the  difference  between  the  aggre- 
gate of  their  notes  and  deposits,  and  their  specie,  is  67|  on  their 
capital. 

This  view  .of  the  subject  applies  to  the  present  time,  when 
the  Bank  of  the  United  States  has  surmounted  the  difficulties 
which  it  had,  in  its  origin,  to  encounter,  and  has  reached  a 
high  degree  of  prosperity.  It  did  not  go  into  operation  till  the 
commencement  of  the  year  1817,  and  such  were  the  losses  which 
it  first  experienced,  that  its  dividends,  during  the  first  six  years 
of  its  existence,  fell  short  of  3^  per  cent,  a  year.  The  dividend 
has  since  gradually  increased  from  5  to  7  per  cent. ;  but  the 
average,  during  the  thirteen  years  and  a  half  ending  on  the  1st 
of  July  1830,  has  been  but  4T\\  per  cent  a  year.  An  annual 
dividend  of  about  9  per  cent,  during  the  residue  of  the  time  to 
which  the  charter  is  limited,  would  be  necessary,  in  order  that 
the  stockholders  should  then  have  received,  on  an  average,  6 
per  cent  a  year  on  their  capital.  The  dividends  of  the  state 
banks  vary  too  much,  and  our  returns  are  too  imperfect  in  that 
respect,  to  enable  us  to  estimate  the  average ;  but  it  has  certain- 
ly far  exceeded  that  of  the  Bank  of  the  United  States. 

The  manner  in  which  the  Bank  checks  the  issues  of  the  state 
banks  is  equally  simple  and  obvious.  It  consists  in  receiving  the 
notes  of  all  those  which  are  solvent,  and  requiring  payment 
from  time  to  time,  without  suffering  the  balance  due  by  any  to 
become  too  large.  Those  notes  on  hand,  taking  the  average  of 
the  three  and  a  half  last  years,  amount  always  to  about  a  mil- 
lion and  a  half  of  dollars ;  and  the  balances  due  by  the  banks  in 
account  current  (deducting  balances  due  to  some)  to  about  nine 
hundred  thousand.  We  think  that  we  may  say,  that,  on  this 
operation,  which  requires  particular  attention  and  vigilance, 
and  must  be  carried  on  with  great  firmness  and  due  forbear- 
ance, depends  almost  exclusively  the  stability  of  the  currency 
of  the  country. 

The  President  of  the  United  States  has  expressed  the  opinion, 
that  the  bank  had  failed  in  the  great  end  of  establishing  a  uni- 
form and  sound  currency,  and  has  suggested  the  expediency  of 
establishing  "  a  National  Bank,  founded  upon  the  credit  of  the 
government  and  its  revenues."  He  has  clearly  seen,  that  the 
uniformity  of  the  currency  was  a  fundamental  principle  derived 


BANKS  AND  CURRENCY.  85 

from  the  Constitution,  and  that  this,  unless  the  United  States 
reverted  to  a  purely  metallic  currency,  could  not  be  effected 
without  the  aid  of  a  National  Bank.  But  it  appears  to  us,  that 
the  objection  of  want  of  uniformity,  which  may  be  supported  in 
one  sense,  though  not  in  the  constitutional  sense  of  the  word, 
applies  generally  to  a  paper  currency,  and  not  particularly  to 
that  which  is  issued  by  the  Bank  of  the  United  States.  And  al- 
though we  are  clearly  of  opinion,  that  the  United  States  at 
large  are  entitled  to  the  pecuniary  profit  arising  from  the  sub- 
stitution of  a  paper,  for  a  metallic  currency,  we  are  not  less 
convinced,  that  this  object  cannot  be  attained  in  a  more  eligi- 
ble way  and  more  free  of  objections,  than  through  the  medium 
of  a  National  Bank,  constituted  on  the  same  principles  as  that 
now  existing.  On  both  those  topics  we  will  make  but  few  ob- 
servations, those  branches  of  the  subject  having  been  nearly 
exhausted,  in  their  report,  by  the  Committee  of  the  House  of 
Representatives. 

It  has  already  been  observed,  that  the  substitution  of  paper 
to  gold  and  silver  is  a  national  benefit,  in  as  far  as  it  brings  into 
activity  an  additional  circulating  capital,  equal  to  the  difference 
between  the  amount  of  paper,  and  that  of  the  reserve  in  specie 
necessary  to  sustain  the  par  value  of  that  paper.  But  it  is  clear, 
that  the  community  derives  no  other  immediate  benefit  from 
the  substitution,  than  the  accommodations  which  the  banks  are 
thereby  enabled  to  afford,  and  for  which  the  borrowers  pay  the 
usual  rate  of  interest.  The  immediate  profit  derived  from  the 
paper  currency,  is  received  exclusively  by  the  banks;  about  three- 
fourths  by  the  state  banks,  and  one-fourth  by  that  of  the  United 
States.  So  far  as  relates  to  profit,  it  is  only  to  that  one-fourth 
part  of  the  whole,  that  the  measures  of  the  general  government 
are  intended  to  apply.  Several  of  the  states,  by  levying  a  tax 
on  the  capital  or  on  the  dividends  of  their  own  banks,  receive 
the  public  share  of  those  profits.  Other  states  have  resorted  to 
the  mode  suggested  by  the  President,  and  have  established 
banks  of  the  state  exclusively  founded  on  its  resources  and 
revenue. 

The  proposition  has  not  been  suggested  to  resort  to  a  third, 
though  the  most  simple  mode,  that  of  issuing,  without  the  aid 
or  machinery  of  any  bank  whatever,  a  government  paper  pay- 
able on  demand  in  specie.  We  unite  in  considering  it  altogether 
inadmissible.  Government  may  put  its  paper  in  circulation  by 
lending  it,  like  banks,  to  individuals ;  and  this  is,  in  fact,  the 
proposition  which  has  been  suggested.  But  unless  this  mode  is 
adopted,  to  issue  paper  in  any  other  way,  is  to  borrow  money ; 
and  the  United  States  at  this  time  wish  to  discharge  and  not  to 
contract  a  debt.  Nor  would  such  a  paper,  without  a  mixture 
of  banking  operations,  control  in  the  least  the  issues  of  state 
banks,  and  assist  in  establishing  a  general  sound  currency. 


86  BANKS  AND  CURRENCY. 

The  general  objections  to  a  paper  issued  by  government,  have 
already  been  stated  at  large.  Yet  it  must  be  admitted,  that 
there  may  be  times  when  every  other  consideration  must  yield 
to  the  superior  necessity  of  saving  or  defending  the  country.  If 
there  ever  was  a  time,  or  a  cause  which  justified  a  resort  to 
that  measure,  it  was  the  war  of  the  independence.  It  would  be 
doing  gross  injustice  to  the  authors  of  the  revolution  and  found- 
ers of  that  independence,  to  confound  them  with  those  govern- 
ments, which  from  ambitious  views  have,  without  necessity,  in- 
flicted that  calamity  on  their  subjects.  The  old  Congress,  as  the 
name  purports,  were  only  an  assembly  of  plenipotentiaries, 
delegated  by  the  several  colonies  or  states.  They  could  only 
recommend,  and  had  not  the  power  to  lay  taxes ;  the  country 
was  comparatively  poor ;  extraordinary  exertions  were  neces- 
sary to  resist  the  formidable  power  of  Great  Britain ;  those  ex- 
ertions were  made,  and  absorbed  all  the  local  resources;  the 
paper  money  carried  the  United  States  through  the  most  ardu- 
ous and  perilous  stages  of  the  war ;  and,  though  operating  as  a 
most  unequal  tax,  it  cannot  be  denied  that  it  saved  the  country. 
Mr.  Jefferson  was  strongly  impressed  with  the  recollection  of 
those  portentous  times,  when  in  the  latter  end  of  the  year  1814, 
he  suggested  the  propriety  of  a  gradual  issue,  by  government, 
of  two  hundred  millions  of  dollars  in  paper.  He  had,  from  the 
imperfect  data  in  his  possession,  greatly  overrated  the  amount 
of  paper  currency  which  could  be  sustained  at  par ;  and  he  had, 
on  the  other  hand,  underrated  the  great  expenses  of  the  war. 
Yet  we  doubt  whether,  in  the  state  to  which  the  banks  and  the 
currency  had  been  reduced,  much  greater  issues  of  Treasury 
notes,  or  other  paper  not  convertible  at  will  into  specie,  would 
not  have  become  necessary,  if  the  war  had  been  of  much  longer 
continuance.  It  is  to  be  hoped  that  a  similar  state  of  things 
will  not  again  occur ;  but  at  all  events,  the  issue  of  a  govern- 
ment paper  ought  to  be  kept  in  reserve  for  extraordinary  exi- 
gencies. 

The  proposition  then  recurs,  to  issue  a  paper  currency  paya- 
ble on  demand  in  specie,  through  the  medium  of  a  bank,  found- 
ed on  the  revenue  of  the  United  States ;  or,  in  other  words,  to 
convert  the  general  government,  or  its  treasury  department, 
into  a  banking  institution.  The  experiment  has  been  made  in 
four  of  the  states,  and  may  have  succeeded  on  a  smaller  scale, 
and  where  all  the  agents  are  personally  knowrn  to  government, 
and  are  not  merely  in  name,  but  in  reality,  under  its  immediate 
superintendence.  But  if  thirty-five  millions  of  dollars  are  to  be 
placed  at  the  disposal  of  three  hundred  bank  directors,  selected 
by  the  government  of  the  United  States,  and  living  in  twenty- 
five  different  states  or  territories,  with  the  authority  to  contract 
debts  in  behalf  of  the  public  to  an  equal  amount,  and  to  lend 
the  whole  to  individuals  at  their  discretion ;  we  must  inquire, 


BANKS  AND  CURRENCY.  87 

liow  and  over  whom  that  enormous  power  will  be  exercised. 
However  they  may  have  differed  with  respect  to  removals  from 
office,  the  various  administrations,  with  some  exceptions,  com- 
manded by  the  public  interest,  have  all  preferred,  in  appoint- 
ing to  office,  their  friends  to  their  opponents ;  and  in  making  the 
selections  at  a  distance,  there  is  not  perhaps,  out  of  ten  officers 
who  are  appointed,  one  who  is  personally  known  either  to  the 
President  or  to  any  of  the  heads  of  the  departments.  It  is  mor- 
ally impossible  that  the  direction  of  the  branches  of  the  pro- 
posed bank  should  not  fall  into  tiie  hands  of  men  generally  se- 
lected from  political  considerations,  often  of  a  local  nature. 
Without  salary,  or  any  personal  interest  in  the  concern  intrusted 
to  their  care,  they  would  also  be  altogether  irresponsible.  The 
duties  of  the  other  officers  of  government  may  always  be,  and 
always  are,  defined  by  law :  for  any  wilful  official  misconduct, 
for  any  act  of  oppression  towards  individuals,  they  may  be  prose- 
cuted and  punished.  But  the  power  vested  in  a  bank  director 
is  in  its  nature  discretionary,  and  error  of  judgment  may  always 
be  pleaded,  for  having  improperly  granted  or  withdrawn  an  ac- 
commodation. The  exercise  of  that  arbitrary  power  over  the 
property  and  private  concerns  of  individuals  would  be  so  odious, 
that,  if  the  attempt  was  made,  we  are  confident  that  it  would 
not  be  long  tolerated.  Considered  as  a  source  of  profit,  which 
is  its  only  recommendation,  it  is  equally  obvious,  that  the  plan 
could  not  succeed ;  that  whenever  there  was  a  temporary  pres- 
sure, and  what  is  called  a  want  of  money,  the  debtors  would  ask 
and  obtain  relief,  and  that  the  same  measure  of  indulgence 
would  gradually  be  extended  to  every  quarter  of  the  Union.  It 
seems  indeed  self-evident,  that  a  government,  constituted  like 
that  of  the  United  States,  cannot  by  itself  manage  and  control 
a  banking  system  spread  over  their  extensive  territory;  and 
we  know,  on  the  other  hand,  that  the  same  object  may  be  at- 
tained through  the  means  of  a  bank  governed  and  controlled 
as  that  of  the  United  States.  It  may  be  added,  that,  if  an  ob- 
jection is  raised  against  that  institution,  because  the  power  to 
incorporate  a  bank  is  not  expressly  granted  by  the  Constitution, 
it  appears  to  be  equally  applicable  to  the  plan  that  has  been 
suggested ;  since  there  is  no  clause  in  that  instrument,  that  ex- 
pressly authorizes  the  government  of  the  United  States  to  dis- 
count the  notes  of  individuals,  or  to  become  a  trading  company. 
The  United  States  are,  however,  justly  entitled  to  participate 
in  the  advantages  which  the  bank  derives  from  its  charter,  by 
being  permitted  to  issue  paper,  and  to  extend  its  operations  over 
the  whole  country ;  and  that  institution  must  also  be  allowed, 
in  addition  to  the  usual  interest  on  its  capital,  a  reasonable  profit; 
since  it  incurs  all  the  risks,  and  is  liable  for  all  the  losses  inci- 
dent to  those  operations.  The  government  receives  already  a 
portion  of  the  profits,  in  the  ah  \po  of  those  services,  which  are 


88  BANKS  AND  CURRENCY. 

rendered  here  gratuitously,  and  form  in  England  no  inconsidera- 
ble part  of  the  benefit  allowed  to  the  bank.  But  for  the  residue, 
\ve  would  prefer  to  a  bonus,  either  a  moderate  interest  on  the 
public  deposits,  or  a  participation  in  the  dividends  when  exceed- 
ing a  certain  rate.  There  can  be  no  doubt,  that,  independent 
of  perfect  security,  the  United  States  would,  in  that  way,  derive 
greater  pecuniary  advantages,  than  from  any  bank  managed  by 
its  own  officers. 

In  order  to  attain  perfect  uniformity,  the  value  of  a  paper 
currency  should,  in  the  United  States,  be  always  the  same  as 
that  of  the  gold  and  silver  coins,  of  which  it  takes  the  place.  It 
is  impossible  to  fulfil  that  condition  better,  than  by  making  that 
currency  payable  on  demand  in  specie  and  at  par.  This  cannot 
be  done  but  at  certain  places  designated  for  that  purpose.  The 
holder  of  a  bank  note  cannot,  at  any  other  place,  give  such  note 
in  payment  of  a  debt,  or  exchange  it  for  specie,  without  the 
consent  of  another  party.  Strictly  speaking,  it  is  not,  there- 
fore, at  any  other  place,  of  the  same  value  with  specie.  This 
is  equally  true  of  any  bank  note,  or  convertible  paper,  in  any 
other  country.  A  note  of  the  Bank  of  England,  being  only  paya- 
ble in  London,  will  not  be  of  the  same  value  with  gold  or  silver 
in  Scotland,  Ireland,  or  even  at  Liverpool,  unless  the  exchange 
between  those  places  respectively  and  London  should  be  at  par. 
This  defect  is  inherent  to  every  species  of  paper  currency,  even 
when  payable  on  demand.  There  were  three  hundred  and 
twenty-nine  state  banks,  and  twenty-two  offices  of  the  Bank  of 
the  United  States,  in  operation  on  the  1st  of  January,  1830. 
We  had  therefore  three  hundred  and  fifty-one  distinct  curren- 
cies, all  convertible  into  specie,  but  each  at  different  places.  A 
note  of  the  Bank  of  the  United  States,  or  of  the  Bank  of  North 
America,  both  payable  at  Philadelphia,  was  no  more  exchange- 
able for  gold  or  silver,  at  Bedford,  in  Pennsylvania,  than  at  Cin- 
cinnati ;  the  only  difference  consisting  in  the  greater  distance 
from  the  place  of  payment,  which  renders  a  fluctuation  in  the 
rate  of  exchange  more  probable.  When,  therefore,  it  is  ob- 
jected as  a  want  of  uniformity,  that  the  notes  issued  by  the 
Bank  of  the  United  States,  and  its  several  offices,  are  not  indis- 
criminately made  payable  at  every  one  of  those  places,  the  ob- 
jection does  not  go  far  enough.  In  order  to  attain  perfect  uni- 
formity, or  to  render  those  notes  everywhere  precisely  equal  in 
value  to  specie,  they  should  be  made  payable  at  every  town  or 
village  in  the  United  States.  But,  although  it  may  be  admitted, 
that  the  notes  of  the  Bank  of  the  United  States  now  consist 
nominally  of  twenty-four  currencies,  each  payable  at  a  distinct 
place,  they  still  fulfil  the  condition  of  uniformity  required  by  the 
Constitution ;  and  the  defect  complained  of  is  not  peculiar  to 
them,  but  would  equally  attach  to  any  other  possible  species  of 
bank  notes  or  paper  currency. 


BANKS  AJND  CURRENCY.  &} 

Those  notes,  wherever  made  payable,  are,  by  the  charter,  re- 
ceivable in  all  payments  to  the  United  States :  and  as  the  bank 
is  obliged,  without  any  allowance  on  account  of  difference  of 
exchange,  to  transfer  the  public  funds  from  place  to  place  within 
the  United  States,  any  loss  arising  from  that  cause  falls  on  the 
institution.  For  that  purpose,  therefore,  all  the  notes  issued  by 
the  bank  constitute  but  one  uniform  currency,  with  which  all 
the  duties,  taxes,  imposts,  and  excises,  may  be  paid.  Not  only 
the  condition  of  uniformity  imposed  by  the  Constitution  is  strict- 
ly fulfilled,  but  by  far  the  greater  part  of  the  notes  which  may 
happen  to  circulate  out  of  the  states  in  which  they  are  made 
payable,  is  also  absorbed  by  that  operation.  The  objection  is 
reduced  to  the  simple  fact,  that  individuals  who  may  still  hold 
such  notes,  cannot  always  exchange  them  at  par  at  a  place  dis- 
tant from  that  where  they  are  payable.  In  answer  to  this,  it 
must,  in  the  first  place,  be  observed;  that  notes  are  never  found 
in  that  situation,  but  by  the  act  of  the  parties  themselves.  The 
bank  and  its  offices  never  issue  or  make  payments  in  notes  pay- 
able at  another  place  than  that  of  issue,  but  at  the  request  of 
individuals,  whose  convenience  it  may  suit  to  apply  for  such 
notes.  Through  whatever  channel  a  man  residing  in  New-Or- 
leans may  have  come  in  possession  of  ten  thousand  dollars  in 
notes  payable  at  Charleston,  it  has  always  been  with  his  own 
consent,  and  never  by  the  act  of  the  bank.  When  this  objec- 
tion is  made,  what  in  fact  is  complained  of,  is,  that  the  bank 
will  not,  or  cannot,  transfer  the  funds  of  individuals,  as  well  as 
those  of  the  public,  from  place  to  place,  gratuitously ;  an  opera- 
tion which  has  no  connexion  with  the  uniformity  of  currency. 
Supposing  there  were  no  bank  notes  in  circulation,  and  there 
was  no  other  but  a  uniform  metallic  currency,  the  man  who 
had  taken  a  cargo  of  flour  from  Louisville  to  New-Orleans,  must, 
in  order  to  transfer  the  proceeds  back  to  Louisville,  either  have 
purchased  a  bill  of  exchange,  or  transported  the  specie.  This 
he  may  still  do,  since  the  institution  of  the  bank ;  and  he  has 
no  more  right  to  ask  from  the  office  at  New-Orleans,  to  give 
him,  in  exchange  for  the  specie,  bank  notes  payable  at  Louis- 
ville, than  to  require  that  it  should  pay  the  freight  of  his  flour 
from  Louisville  to  New-Orleans. 

But  supposing  there  was  any  weight  in  the  objection,  it  is  in- 
herent to  the  nature  of  a  paper,  which  cannot,  in  that  respect, 
be  made  better  than  a  metallic  currency.  If  A  contracts  to  pay 
a  certain  sum  to  B,  it  must  be  at  a  certain  specified  place.  He 
cannot  engage  to  do  it  at  five  or  six  different  places,  at  the 
option  of  B,  since  it  would  compel  him  to  provide  funds  at  all 
those  different  places,  and  therefore  to  five  or  six  times  the 
amount  of  his  debt.  It  is  true,  that  the  Bank  of  the  United 
States  has,  through  its  extensive  dealings  in  exchange,  facilities 
to  give  accommodations  in  that  respect,  which  no  individual 


90  BANKS  AND  CURRENCY. 

can  have.  But  it  is  its  interest  to  extend,  as  far  as  is  safe  and 
practicable,  the  circulation  of  its  notes ;  and  one  of  the  best 
means  to  effect  that  object,  is  to  pay  everywhere  their  notes, 
wherever  issued,  whenever  that  is  practicable.  The  five  dollar 
notes  are  already  made  thus  payable ;  and,  in  reality,  payment 
of  notes  of  every  denomination,  wherever  made  payable,  is  rarely 
refused  at  any  of  the  offices.  The  bank  may  be  safely  trusted 
for  giving  the  greatest  possible  extension  to  a  species  of  accom- 
modation, which  it  is  its  interest  to  give :  but  the  condition  cari 
never  be  made  obligatory,  either  on  that  institution,  or  on  any 
other  bank,  by  whatever  name  designated,  or  on  whatever 
principle  constituted,  without  endangering  its  safety.  It  is  ob- 
vious, that  no  bank  which  has  branches,  can  have  funds  at 
every  place  sufficient  to  meet  a  sudden  demand  for  the  payment 
of  a  large  amount  of  notes  payable  elsewhere,  which  may  for- 
tuitously or  designedly  have  accumulated  at  some  one  place. 
Even  supposing  this  to  be  practicable,  the  condition  imposed 
must  necessarily  occasion  an  additional  expense,  much  greater 
than  the  benefit  derived  from  it ;  and  if  this  was  done  through 
the  means  of  a  bank  founded  on  the  public  revenue,  it  would  be 
a  tax  laid  on  the  community,  for  the  advantage  of  a  few  indi- 
viduals. 

A  similar  objection  has  been  made  with  respect  to  the  deal- 
ings in  domestic  exchange  of  the  bank.  These  consist  of  two 
correlative  but  distinct  operations.  The  bank  purchases  at  Phila- 
delphia, and  at  every  one  of  its  offices,  bills  of  exchange  pay- 
able at  different  dates,  and  on  all  parts  of  the  United  States 
where  there  are  such  offices ;  and  the  bank  and  its  offices  sell 
their  drafts  on  each  other,  payable  at  sight.  The  amount  of  both 
has  been  progressively  increasing,  to  the  great  convenience  of 
the  public.  That  of  bills  of  exchange  was  29,335,254,  and  that 
of  bank  drafts  24,384,232  dollars,  during  the  year  1829.  In  the 
same  year  the  transfers  of  public  moneys,  which  are  effected  by 
treasury  drafts,  analogous  to  bills  of  exchange  at  sight,  have 
amounted  to  9,066,000  dollars.  The  three  items  together  make 
a  total  of  62,785,486  dollars,  transmitted  by  the  bank  in  one 
year,  through  the  medium  of  bills  and  drafts,  which  are  thus 
substituted  to  the  transportation  of  specie  to  the  same  amount. 
The  purchase  of  bills  of  exchange  is  an  operation  similar,  as  re- 
lates to  interest,  to  the  discounting  of  notes.  The  interest  ac- 
cruing, from  the  time  of  purchase  or  discount  to  that  when  they 
become  due,  is  equally  allowed  in  both  cases.  Deducting  this, 
the  gross  profit,  on  the  purchase  of  bills,  arising  from  the  rate 
of  exchange  at  which  they  were  purchased,  amounted  in  the 
year  1829  to  227,224  dollars,  or  less  than  three-fourths  per 
cent.  The  premiums  on  the  sale  of  bank  drafts  amounted  to 
42,826  dollars ;  but  to  this  must  be  added  the  interest  accruing 
on  the  drafts  actually  in  circulation,  and  which,  estimating,  as 


BANKS  AND  CURRENCY.  91 

before  stated,  the  time  during  which,  on  an  average,  they  re- 
main so,  at  fifteen  days,  amounts  to  near  sixty-one  thousand  dol- 
lars. The  profit  on  those  drafts  is  therefore  near  one  hundred 
and  four  thousand  dollars,  or  about  three-sevenths  per  cent.  The 
interest  lost  by  the  bank  on  the  treasury  drafts,  is  from  fifteen 
to  twenty  thousand  dollars ;  and  the  charges  for  transportation 
of  specie,  postage,  and  incidental  expenses,  amounted,  in  the 
year  1829,  to  49,847  dollars.  The  nett  profit  of  the  bank,  on 
the  aggregate  of  those  transactions,  is,  therefore,  about  two 
hundred  and  sixty-four  thousand  dollars,  or  a  fraction  more  than 
two-fifths  per  cent,  on  the  whole  amount. 

There  is  not,  it  is  believed,  a  single  country  where  the  com- 
munity is,  in  that  respect,  served  with  less  risk  or  expense.  It 
is  obvious  that  no  one  will  sell  his  bills  to  the  bank,  unless  that 
institution  purchases  them  at  a  higher,  or  at  least  as  high  rate 
as  any  other  person  ;  and  that  no  one  will  purchase  its  drafts, 
unless  they  are  as  cheap  as  any  others  at  market,  or  are  con- 
sidered safer.  There  is  no  other  ground  of  complaint,  unless  it 
be  that  the  bank  can  afford  to  purchase  bills  dearer,  and  to  sell 
its  drafts  cheaper,  than  any  body  else.  This  is  certainly  a  pub- 
lic benefit ;  and  the  only  consideration  which  has  been  urged 
with  some  degree  of  plausibility,  is,  that  one  of  the  reasons 
which  enables  the  bank  to  obtain  a  higher  price  for  its  drafts, 
is  the  greater  degree  of  security  which  they  offer ;  whilst,  at  the 
same  time,  its  peculiar  situation  would  enable  it  to  sell  them 
cheaper  than  other  persons.  Without  admitting  the  validity  of 
this  observation,  or  denying  that  the  current  rate  of  exchange 
ought  to  regulate  the  price  of  those  drafts,  we  would  wish  that 
they  might  be  sold  at  par,  whenever  it  happens  that  the  opera- 
tion, from  the  situation  of  its  funds,  is  in  no  degree  inconvenient 
to  the  bank.  Government  receives  its  full  share  of  the  profits  on 
those  operations.  As  its  business  is  done  gratuitously,  it  not  only 
saves  the  interest  as  above  stated,  but  also  the  premium  which 
it  would  otherwise  have  to  pay  on  the  sale  of  its  drafts.  This, 
calculated  at  the  same  rate  as  ifor  other  bills  of  exchange,  would 
amount  to  more  than  seventy,  and  together  with  the  interest,  to 
about  ninety  thousand  dollars  a  year. 

We  have  also  heard  complaints  made  against  the  purchase  of 
foreign  bills  by  the  bank  at  the  south,  and  the  sale  of  their  own 
bills  on  Europe  at  the  east.  That  this  may  interfere  with  the 
business  of  capitalists  who  deal  in  exchange,  is  true ;  but  the 
principal  public  consideration  seems  to  be,  whether  the  bank 
confers  a  benefit  on  the  southern  planters  or  merchants,  by  en- 
tering into  competition  for  the  purchase  of  their  bills,  and  on  the 
public  by  offering  for  sale  cheaper  or  safer  means  of  making 
remittances  abroad.  Another  great  advantage  is  found  in  the 
facility,  thereby  afforded  to  the  bank,  of  having  a  fund  in  Eng- 
land on  which  it  receives  interest,  and  which,  on  an  emergency, 


92  BANKS  AND  CURRENCY. 

answers  the  same  purpose  as  specie.  That  branch  of  business, 
either  for  the  year  1829,  or  for  the  average  of  that  and  the  two 
preceding  years,  amounted  to  3,580,000  dollars. 

The  principal  advantages  derived  from  the  Bank  of  the  United 
States,  which  no  state  bank,  and,  as  it  appears  to  us,  no  bank 
established  on  different  principles,  could  afford,  are,  therefore : 
First  and  principally ;  securing  with  certainty  a  uniform,  and, 
as  far  as  paper  can,  a  sound  currency  :  Secondly ;  the  complete 
security  and  great  facility  it  affords  to  government  in  its  fiscal 
operations :  Thirdly ;  the  great  convenience  and  benefit  accru- 
ing to  the  community,  from  its  extensive  transactions  in  domes- 
tic bills  of  exchange  and  inland  drafts.  We  have  not  adverted 
to  the  aid  which  may  be  expected  from  that  institution  in  time 
of  war,  and  which  should,  we  think,  be  confined  to  two  objects. 

First.  The  experience  of  the  last  war  has  sufficiently  proved, 
that  an  efficient  revenue  must  be  provided,  before,  or  immedi- 
ately after  that  event  takes  place.  Resort  must  be  had,  for  that 
purpose,  to  a  system  of  internal  taxation,  not  engrafted  on  taxes 
previously  existing,  but  which  must  be  at  once  created.  The 
utmost  diligence  and  skill  cannot  render  such  new  taxes  pro- 
ductive before  twelve  or  eighteen  months.  The  estimated 
amount  must  be  anticipated ;  and  advances  to  that  extent,  in- 
cluding at  least  the  estimated  proceeds  of  one  year  of  all  the 
additional  taxes  laid  during  the  war,  may  justly  be  expected 
from  the  Bank  of  the  United  States. 

Secondly.  It  will  also  be  expected,  that  it  will  powerfully 
assist  in  raising  the  necessary  loans,  not  by  taking  up,  on  its  own 
account,  any  sum  beyond  what  may  be  entirely  convenient  and 
consistent  with  the  safety  and  primary  object  of  the  institution, 
but  by  affording  facilities  to  the  money  lenders.  Those,  who, 
in  the  first  instance,  subscribe  to  a  public  loan,  do  not  intend  to 
keep  the  whole,  but  expect  to  distribute  it  gradually  with  a 
reasonable  profit.  The  greatest  inducement,  in  order  to  obtain 
loans  on  moderate  terms,  consists  in  the  probability  that,  if  that 
distribution  proceeds  slower  than  had  been  anticipated,  the  sub- 
scribers will  not  be  compelled,  in  order  to  pay  their  instalments, 
to  sell  the  stock,  and,  by  glutting  the  market,  to  sell  it  at  a  loss : 
and  the  assistance  expected  from  the  bank  is  to  advance,  on  a 
deposit  of  the  scrip,  after  the  two  first  instalments  have  been 
paid,  such  portions  of  each  succeeding  payment,  as  may  enable 
the  subscribers  to  hold  the  stock  a  reasonable  length  of  time. 
As  this  operation  may  be  renewed  annually,  on  each  successive 
loan,  whilst  the  war  continues,  the  aid  afforded  in  that  manner 
is  far  more  useful  than  large  direct  advances  to  government, 
which  always  cripple  the  resources,  and  may  endanger  the 
safety  of  a  bank. 


NOTES   AND   STATEMENTS. 


NOTE  A. 

RELATIVE  VALUE  OF  GOLD  AND  SILVER. 

It  has  already  been  observed,  that  the  intrinsic  value  and  average  market 
price  of  current  coins  are  greater  than  those  of  bullion  of  the  same  weight 
and  standard ;  and  that  the  difference  is,  on  account  of  the  greater  compa- 
rative expense  of  coinage,  greater  with  respect  to  silver  than  to  gold  coins. 
The  ratio  of  15.7  to  1  is  nearly  that  of  gold  to  silver  bullion  in  France,  and 
it  has  been  found  to  correspond,  during  a  long  period,  with  the  market  price 
in  that  country ;  whilst  the  average  price  of  the  gold  and  silver  coins  has 
been  in  the  ratio  of  about  15.6  to  1,  making  a  difference  of  about  f  per  cent, 
between  the  two  ratios.  The  English  market  is,  with  respect  to  silver, 
much  more  uncertain,  from  the  want  of  a  constant  demand  and  uniform 
mint  price.  Silver  is  accordingly  exported  in  preference  to  France,  and 
gold  to  England.  The  respective  prices,  as  quoted  in  England,  give  the 
ratio  of  gold  coins  to  silver  bullion.  If  this  average  ratio  is  taken  at  15.85 
to  1,  and  the  average  English  market  price  of  standard  gold  bullion  at 
771 7£,  .the  ratio  of  gold  to  silver  -bullion  will  be  found  to  be  less  than  15.8 
to  1 ;  and,  making  the  above-mentioned  allowance  of  £  per  cent,  for  the 
difference  between  the  two  ratios,  that  of  gold  to  silver  coins,  as  deduced 
from  the  British  average  market  prices,  does  not  exceed  15.7  to  1.  It  is, 
in  order  to  guard  against  any  exportation  of  silver,  in  preference  to  gold 
coins,  and  any  possible  danger  of  altering  the  present  standard  of  value, 
that  we  are  desirous  that  this  ratio  should  not  be  exceeded.  The  premium 
on  gold  coins  in  France,  has,  in  the  text,  been  generally  rated  at  one  half 
per  cent  The  true  average  taken  for  six  years  was  only  one-third  per 
cent. 


NOTE  B. 

ON  SCOf  CH  BANKS. 

"Chiefly  extracted  from  the  Report  of  the  Select  Committee  of  the  House 
of  Commons  on  Promissory  Note?  of  Scotland  and  Ireland.  May  26, 
1826. 

EXTRACT. 

"  There  are  at  present  thirty-two  banks  in  Scotland,  three  of  which  are 
incorporated  by  act  of  Parliament,  or  by  royal  charter,  viz.  The  Bank  of 
Scotland,  the  Royal  Bank  of  Scotland,  and  the  Bank  called  the  British  Linen 
Company. 

The  National  Bank  of  Scotland  has  1238  partners. 

The  Commercial  Bank  of  Scotland  hae  521. 

The  Aberdeen  Town  and  County  Bank  has  446. 

Of  the  remaining  banks -there  are  three  in  which  the  number  of  partners 
exceeds  100;  six  in  which  the  number  is  between  20  and  100;  and  seven- 
teen in  which  the  number  falls  short  of  20. 

The  greater  part  of  the  Scotcli  banks  have  brandies  in  connexion  with 
the  principal  establishment,  each  branch  managed  by  an  a  wont  acting  under 


94  BANKS  AND  CURRENCY. 

the  immediate  directions  of  his  employers,  and  giving  security  to  them  for 
his  conduct. 

The  Bank  of  Scotland  had,  at  the  date  of  the  last  return  received  by 
your  committee,  sixteen  branches,  established  at  various  periods  between 
the  year  1774  and  the  present. 

The  British  Linen  Company  had  twenty-seven  branches. 

The  Commercial  Banking  Company  in  Edinburgh,  thirty-one. 

The  total  number  of  branches  established  in  Scotland  from  the  southern 
border  to  Thurso,  the  most  northerly  point  at  which  a  branch  bank  exists, 
is  one  hundred  and  thirty-three. 

Speaking  generally,  the  business  of  a  Scotch  bank  consists  chiefly  in  the 
receipt  and  charge  of  sums  deposited  with  the  bank,  on  which  an  interest 
is  allowed,  and  in  the  issue  of  promissory  notes  upon  the  discount  of  bills, 
and  upon  advances  of  money  made  by  the  bank  upon  what  is  called  a  cash 
credit. 

The  interest  allowed  by  a  bank  upon  deposits  varies  from  time  to  time, 
according  to  the  current  rate  of  interest  which  money  generally  bears.  At 
present  the  interest  allowed  upon  deposits  is  four  per  cent. 

It  has  been  calculated  that  the  aggregate  amount  of  the  sums  deposited 
with  the  Scotch  banks  amounts  to  about  twenty  or  twenty-one  millions. 
The  precise  accuracy  of  such  an  estimate  cannot  of  course  be  relied  on. 
The  witness  by  whom  it  was  made  thought  that  the  amount  of  deposits  could 
not  be  less  than  sixteen  millions,  nor  exceed  twenty-five  millions,  and  took 
an  intermediate  sum  as  the  probable  amount. 

Another  witness,  who  had  been  connected  for  many  years  with  different 
banks  in  Scotland,  and  has  had  experience  of  their  concerns  at  Stirling, 
Edinburgh,  Perth,  Aberdeen  and  Glasgow,  stated  that  more  than  one-half 
of  the  deposits  in  the  banks  with  which  he  had  been  connected  were  in  sums 

from  ten  pounds  to  two  hundred  pounds." 

******** 

"  On  sums  advanced  by  the  banks  on  the  discount  of  bills  of  exchange, 
and  upon  cash  credits,  an  interest  of  five  per  cent,  is  at  present  charged. 

A  cash  credit  is  an  undertaking  on  the  part  of  a  bank  to  advance  to  an 
individual  such  sums  of  money  as  he  may  from  time  to  time  require,  not 
exceeding  in  the  whole  a  certain  definite  amount,  the  individual  to  whom 
the  credit  is  given  entering  into  a  bond  with  securities,  generally  two  in 
number,  for  the  repayment  on  demand  of  the  sums  actually  advanced,  with 
interest  upon  each  issue  from  the  day  on  which  it  is  made. 

Cash  credits  are  rarely  given  for  sums  below  one  hundred  pounds ;  they 
generally  range  from  two  to  five  hundred  pounds,  sometimes  reaching  one 
thousand  pounds,  and  occasionally  a  larger  sum. 

The  bank  allows  the  party  having  the  cash  credit,  to  liquidate  any  por- 
,tion  of  his  debt  to  the  bank,  at  any  time  that  may  suit  his  convenience,  and 
reserves  to  itself  the  power  of  cancelling,  whenever  it  shall  think  fit,  the 
credit  granted." 

The  amount  of  deposits,  on  which  the  Scotch  banks  allow  interest,  may 
be  estimated  at  about  £18,000,000  sterling.  One-half  is  said  to  consist  of 
small  sums  deposited  by  mechanics,  fishermen,  and  laborers;  and  that  part 
of  the  system  may  be  considered  as  analogous  to  that  of  the  Saving  Banks, 
and  as  having  the  same  beneficial  effect. 

The  cash  credits  are  generally  for  sums  from  200  to  500  pounds,  some- 
times as  high  as  £1000,  and  sometimes  as  low  as  £50.  The  total  amount, 
for  which  credits  are  opened,  is  estimated  at  six,  and  the  average  amount 
actually  drawn,  and  due  to  the  banks,  at  four  millions  sterling.  They  are 
generally  granted  to  shopkeepers  commencing  business,  and  to  tradesmen 
generally.  The  great  advantage  of  this  system,  which  is  thus  far  substi- 
tuted to  the  discounting  of  notes,  is,  that  the  borrower  never  draws  more 


BANKS  AND  CURRENCY.  95 

from  the  bank  than  what  is  absolutely  necessary  for  the  purposes  of  his 
business.  The  banks  require  that  the  capital  loaned  should  be  actively  and 
constantly  employed.  One  of  the  witnesses  says,  "  I  would  say  that  no 
cash  account  is  at  all  well  operated  upon,  unless,  at  the  close  of  it  in  a  year, 
the  amount  of  the  transactions  on  each  side  is,  at  the  very  least,  five  tunes 
the  amount  of  the  grant.  When  the  account  continues  stagnant  for  any 
length  of  time,  we  intimate  to  the  holder,  that,  at  a  fixed  period,  he  must 

it  up." 

he  total  amount  of  the  notes  in  circulation  is  stated  for  1825  : 
in  notes  of  £5  and  upwards  ..........  1,230,000 

in    do.    of  under  £5,  never  lower  than  £1,  .  2,080,000 


pay  i 
T 


at  £3,310,000 

The  great  and  efficient  method  of  preventing  the  over-issuing  of  bank 
notes,  and  the  depreciation  of  their  value,  consists  in  the  practice,  rigorously 
adhered  to  by  all  the  banks,  of  exchanging  each  other's  notes  twice  a  weelr, 
and  paying  immediately  the  balances.  For  that  purpose,  "  all  the  banks  of 
Scotland  have  agents  at  Edinburgh,  who  exchange  their  notes  twice  a 

week,  Monday  and  Friday ; and  the  balances  (are)  paid  by  short  dated 

bills  (ten  days)  on  London.  The  state  of  those  balances  is  looked  at  by  the 
banks,  with  the  utmost  jealousy  and  attention ; if  any  thing  in  any  de- 
gree wrong  were  to  appear,  the  banks  would  instantly  correct  it,  and  force 
a  bank  acting  improperly  to  alter  its  mode  of  conduct."  This  method  is 
the  same  which,  though  with  less  rigor  and  uniformity,  is  successfully  used 
by  the  allied  banks  of  Boston,  and  by  the  Bank  of  the  United  States,  for 
preventing  excessive  issues  of  paper. 

It  is  asserted,  that  the  whole  loss  sustained  in  Scotland  by  the  public,  by 
bank  failures,  through  more  than  a  century,  has  amounted  to  no  more  than 
£36,344 ;  and  this  result  seems  to  be  altogether  ascribed  to  the  peculiar 
features  briefly  noticed  in  this  note. 


NOTE  C. 

RESTRICTIONS  ON  PRIVATE  BANKING. 

It  is  also  provided  by  a  law  of  the  State  of  New- York,  (1818,)  that  "  no 
person,  association  of  persons,  or  body  corporate,  except  such  bodies  corpo- 
rate as  are  expressly  authorized  by  law,  shall  keep  any  office  for  the  pur- 
pose of  receiving  deposits,  or  discounting  notes  or  bills,  or  issuing  any 
evidence  of  debt  to  be  loaned,  or  put  in  circulation  as  money :  nor  shall 
they  issue  any  bills  or  promissory  notes  or  other  evidences  of  debt  as  private 
bankers,  for  the  purpose  of  loaning  them,  or  putting  them  in  circulation  as 
money,  unless  thereto  specially  authorized  by  law." 

The  prohibition  to  issue  any  species  of  paper,  that  can  be  put  in  circula- 
tion as  money,  is  perfectly  proper,  and  indeed  necessary :  but  that  of  receiv- 
ing deposits,  or  discounting  notes  or  bills,  must  have  had  some  special  and 
temporary  object  in  view,  and  does  certainly  require  revision.  Why  indi- 
viduals should  not  be  permitted  to  deposit  their  money  with  whom  they 
please,  is  not  understood.  In  such  cases,  interest  is  generally  allowed,  and 
this  practice  promotes  frugality,  and  should  rather  be  encouraged  than  for- 
bidden. So  long  as  credit  is  deemed  essential  to  commerce,  the  discounting 
of  notes  or  bills,  by  private  individuals,  creates  competition,  and  is  a  public 
benefit.  Incorporated  banks  cannot  conveniently  alter,  either  the  rate  at 


96  BANKS  AND  CURRENCY. 

which  they  discount,  or  the  time  at  which  the  notes  discounted  must  be 
paid  or  renewed.  Private  capitalists  may  and  do  modify  their  loans,  in  both 
respects,  according  to  the  state  of  the  money  market,  and  to  the  wants  of 
the  community.  They  will  discount  at  the  rate  of  four  or  five  per  cent, 
when  the  use  of  capital  is  worth  no  more ;  and,  being  still  controlled  by  the 
general  law  of  the  land,  they  never  can  legally  receive  more  than  the  legal 
rate  of  interest.  And  they  may,  to  the  great  benefit  of  commerce,  discount 
business  notes  due  at  three  and  six  months  date.  The  advantages,  if  not 
the  necessity,  of  this  accommodation  are  such,  that  it  is  understood,  that  the 
law  in  question  is,  in  that  respect,  daily  disregarded.  The  prohibition  al- 
luded to  has  no  other  effect,  than  that  of  deterring  some  prudent  capitalists 
from  engaging  in  that  business,  and  of  enhancing  the  premium,  which, 
those  who,  in  order  to  meet  their  engagements,  negotiate  the  evidences  of 
debt  due  to  them,  must  pay  for  the  discount. 


BANKS  AND  CURRENCY. 


97 


A  List  of  the  State 

STATEMENT  I. 
Banks  in  operation  on  the  1st  of  January, 
1830. 

Capital. 

MASSACHUSETTS. 

Massachusetts  800.000 
Union    ;     800.000 

Oxford  .  .  . 

Capital. 
100000 

Sunderland  
Sutton  

.  .      100.000 
.  .       75.000 

Phoenix  

.  ,      200.000 
.  .      120.000 
.  .      210.000 

Washington  
66  Banks.. 

MAINE. 
Portland  

.  .     500.000 
.  20.420.000 

Newburyport  ......... 

!  Beverly    „•  
j  Boston           

100.000 
.  .      900.000 

.  .      200.000 

250000 

100000 

90O  fMlT) 

Saco  

.  .      100.000 

120  000 

.  .      200.000 

900OOO 

Bath  

.  .       100.000 

1  800  000 

Lincoln  

.  .      100.000 

200  fl(¥) 

A  ugusta  ;  i  

.  .      100.000 

Kennebunk  

100.000 

1  7*i  000 

.  .      100.000 

Waterville  

50.000 

100  000 

Bangor  

50.000 

inn  ooo 

Casco  t  

.  .      200.000 

Manuf.  &  Mech's.  (Boston)  . 

.  .     750.000 
.  ,     250.000 
.  .      100.000 
.  .      150.000 
100000 

300000 

Manufacturers  .  .-  

.  .      100.000 

Merchants  *  

..      150.0.0 

Merrimack    ........     . 

South  Berwick 

50000 

Thomaston  

50.000 

Suffolk 

750  000 

Union  

50.000 

qnn  nnn 

60.000 

Bedford  Commercial    .... 

.  .      250.000 
.  .      100.000 
750000 

18  Banks.. 

..  2.000.000 

Andover  ............ 

.  .      100.000 

NEW-HAMPSHIRE, 
Union  .-....-•-      150.000 

350000 

500000 

100  000 

Concord,  (Lower)  

80.000 

100000 

100.000 

150000 

Exeter  

100000 

I  Junker  Hill 

i  Kn  flOfi 

Strafford   .               - 

100000 

150  000 

Cheshire  «>.    

100  000 

Central 

50.000 
1  000000 

.  .      165.500 

i  r;tv 

Rockingham  

100.000 

500000 

Commercial  i  .  . 

.  .      100.000 

500000 

150.000 

120  000 

Dover  

128  070 

i  Eagle 

500  000 

100.000 

300000 

Farmers  ... 

65000 

!  Fail  River  
Pal  mouth   

.  .     200.000 
100000 

83100 

50.000 

100000 

Grafton  

.  .      100.000 

!  Fraftk-lin  (Boston) 

100000 

60.000 

Franklin  (Greenfield) 

100000 

60.000 

Globe    .  .     . 

1000000 

18  Banks.. 
VERMONT. 

..   1.791.670 

100000 

1  oo  ooo 

'  Hoosatonic 

100000 

63000 

Leicester    

100000 

Lowell 

100000 

!  Man.  &  Mech's.  (Nantucket) 
i  Mendon    .  , 

.      100.000 
100  000 

Windsor    • 

80000 

50000 

.  .     200000 

Rutland 

60.000 

M.Trhants,  (New-Bedford)  . 
'  Millbiiry     . 

.  .     250.000 
100000 

30000 

St  Albans 

20  000 

:  Norfolk    

200000 

30  000 

North  Bank   

.  .     750.000 

Vergennes  

.  .  .      30.000 

98 


BANKS  AND  CURRENCY. 


STATEMENT  I.—  Continued. 

Orange  County  

Capital. 
29.625 
40.000 

Thames  

Capital. 
153.500 
133.000 
333.850 
400.000 
339.600 
53.000 

4.485.177 

369.000 
400.000 
500.000 
312.000 
110.000 
500.000 
1.000.000 
1.490.000 
2.000.000 
278.000 
240.000 
165.000 
1.000.000 
2.031.200 
1.000.000 
352.000 
500.000 
100.000 
406.153 
184.000 
86.000 
74.000 
480.000 
200.000 
500.000 
225.000 
75.000 
250.000 
300.000 
510.000 
120.000 
106.000 
220.000 
2.050.000 
700.000 
750.000 
500.000 

'  Bennington 

Fairfield  Co 

10  Banks.... 

RHODE  ISLAND. 
Providence  

432.625 

500.000 
100.000 
500.000 
150.000 
75.000 
105.350 
60.000 
120.000 
499.950 
200.000 
50.000 
150.000 
220.000 
500.000 
87.858 
37.360 
25.000 
300.000 
50.000 
38.000 
67.000 
20.000 
50.000 
50.000 
500.000 
75.000 
42.000 
66.275 
15.660 
20.000 
100.000 
394.600 
103.990 
70.000 
60.000 
40.000 
100.100 
65.750 
50.000 
40.000 
83.750 
40.000 
100.000 
44.485 
25.000 
51.269 
75.000 

Stoning  ton         . 

13  Banks.... 

NEW-YORK. 

State  Bank  at  Albany 

'  Rhode  Island 

i  Bristol  

Warren  . 

Geneva 

i  Smithfield  Union  

Utica  

Newport  

Mech's.  and  Farmers,  Albany  . 
Catskill 

Rhode  Island  Union  

Phoenix       ...      . 

New-  York  

Commercial,  (Bristol)  

Merchants  ..   .         

Union,  (Providence)  

Farmers,  (Troy)    . 

Pautuxet        

Albany 

Burrillville  Agr'l.  and  Man'g..  . 
Cranston  

Mohawk  

Union 

Eagle,  (Providence)  

America  

•  Eagle,  (Bristol)  

City  Bank  . 

i  Franklin 

Trov 

j  Freeman's  

Ontario  

1  Kent 

Chenango 

Landholders  

Middle  District  

Merchants  (Newport) 

Auburn       ..    . 

Merchants,  (Providence)  

Central,  (Cherry  Valley)  

N.  E.  Commercial,  (Newport)  . 
Phoenix,  (Westerly)  

Jefferson  County 

Tradesmens  

R  I  Central 

Dry  Dock  Co  

Scituate  

North  River  

Warwick 

Commercial  .  .'  

Rochester  

Mechanics  and  Man'g.  (Prov.)  . 
1  Hight  St.  Bank  .  .             . 

Franklin  

Smithfield  Exchange 

Village  Bank.              .       ... 

Orange  County  

Smithfield  Lime  Rock 

Cumberland 

Manhattan  Co  

Delaware  and  Hudson  .  . 

Mount  Vernon  .       .     . 

Fulton  

N  E  Pacific 

Chemical             

Union  (Bristol) 

37  Banks.... 

NEW-JERSEY. 

State  Bank  Camden 

Hope  (Warren) 

20.083.353 

Centreville 

266.050 
71.984 
132.550 
280.000 
93.700 
100.000 
90.000 
350.000 
27500 

Woonsocket  Falls  

Mount  Hope  (Bristol)  

47  Banks.... 
CONNECTICUT. 

"      "       New-Brunswick... 
"      "       Elizabethtown  
"      "       Newark  

6.158.397 

146.437 
150.000 
1.252.900 
1.218.500 
100.000 
100.000 
104.390 

Farmers  Bank  New  Jersey  .  .  . 

Norwich         .       

Newark  Bank'g.  and  Ins.  Co.  .  . 

Hartford 

Phcenix  

Trenton  Bankin^  Co  

214.740 
52.025 
30.000 
30.000 

j  Bridgeport  . 

Cumberland 

Union  (New-  London)  

Commercial  

Windham  Co  

Far's.  and  Mech's.  Rah  way  

BANKS  AND  CURRENCY. 


STATEMENT  L—  Continued. 

Orange  Bank   ...   .     ........ 

Capital. 
50.000 
75.000 
30.000 
30.000 
93.460 

Capital. 
Farmers  and  Merchants                 414  045 

Franklin                                            406  500 

Salem  Banking  Co.  

Marine  235  000 

Hagerstown                                      250  000 

Washington  Bonk  

Farmers  of  Maryland                      820  000 

18  Banks.... 

PENNSYLVANIA 
Pennsylvania  ..         

2.017.009 

Westminster  175  000 

Frederick  County                           175  000 

'2.500.000 
1.800.000 
1.000.000 
1.250.000 
247,228 
90-000 
77.510 
125.318 
346.155 
171.466 
187.380 

Bank  of  Maryland  200  000 

13  Banks  6,250.495 

Philadelphia 

North  America  

DISTRICT  OF  COLUMBIA. 

\Vashineton                                     479  120 

Charnbersburgh  

Chester  County  

Delaware  County  
Gettysburgh  

Alexandria  500.000 

Pittsburgh  
Carlisle  '.  

Potomac  500.000 
Mechanics  of  Alexandria  372.544 

Farmers  of  Bucks  Co  

60.000 
400.000 
300.000 
158,525 
134.235 

102.123 

112.500 
107.033 
168.720 
129.500 
133.340 
200.000 
1.000.000 
529.330 
500.000 
249.630 
124.990 
149.980 
395-000 
40.000 
20.000 
1.800.000 

14.609.963 

Farmers  and  Mechanics  )            AKfr  Qnn 
of  Georgetown 
Patriotic    250.000 

Farmers  of  Reading.  .  .  .  ,  

Harrisburgh  

9  Banks....  3.875.794 

Monongahela  Bank  of  > 
Brownsville                $ 
Northampton  

VIRGINIA. 

Bank  of  Virginia  2.740.000 

Westmoreland  
York  

Germantown  

Montgomery  County  
Northern  Liberties  

Bank  of  the  Valley  654.000 
North-Western  Bank  )                    T~7  inn 

of  Virginia              $  '  ' 
4  Banks....  5.571.100 

NORTH  CAROLINA. 

Cape  Fear    .                                   7%  000 

Mechanics  of  Philadelphia  
Schuytkill                          

Sonthwark  

Penn  Township  

Miners  Bank  of  Pottsvilie  
Erie              

Newbern  FOO.COO 

State  Bank  l.COO.COO 

SBa-iks  3.195.000 

33  Banks.... 

DELAWARE. 

Delaware  Bank,  Wilmington.. 
Farmers  Bank  of  Del. 

SOUTH  CAROLINA. 

Bank  of  State  of  S.  Carolina.  .  .   1.  156.000 
Planters  and  Mechanics,    )          ,  mn  nrn 
Charleston                       $"•  1<()OC 
State  Bank   800.000 

110.000 
500.000 
120.000 
100.000 
ot  known, 
do. 

Wilmington  and  Brandy  wine.  . 
Bank  of  Smyrna  
Commercial  Bank  of  DeL  ...  IS 

South  Carolina         .       .               675.000 

Union  1.000.000 

4  Banks 

5  Banks....  4.631.000 

830000 

2  not  known. 
6  Banks. 

MARYLAND. 

Bank  of  Baltimore  
Union  .  .   . 

1.197.550 
1  500  000 

GEORGIA. 

Bank  of  State  of  Georgia  1  .303.436 

Planters  Bank  of    do  566.000 
Marine  and  Fire  Insurance  Not  given. 
Augusta                         GOO.COO  ' 

Darien  464.276  i 

384.000 
318.400 

Central         922.317  j 

Commercial  and  Farmers  .... 

Augusia  Insurance  110  000 

100 


BANKS  AND  CURRENCY. 


STATEMENT  I.—  Continued. 


Macon , 

Merchants  and  Planters 


Capital. 

$  75.00Q 

142.000 


9  Banks....  4.203.029 


LOUISIANA. 

Louisiana  State  Bank 

Orleans , 

Bank  of  Louisiana 

Branch  of  Bank  of  Louisiana 


1.248.720 

424,700 

2.992.560 

1.000.000 


4  Banks....  5.665.980 


ALABAMA. 

Bank  of  State 

"     of  Mobile... 


495.503 
148.000 


2  Banks.... 

MISSISSIPPI. 

Bank  of  State  of  Missis-  > 
sippi  and  Branches         \  '  * ' 
IBank. 

TENNESSEE. 

Bank  of  State  of  Tennessee 

1  Bank. 


643.503 


950.600 


737.817 


OHIO. 

Chilicothe 

Steubenville , 

Western  Reserve  Bank 

Belmont  Bank  of  St.  Clairsville 

Commercial  of  Scioto 

Farmers  of  Canton 

Farmers  and  Mechanics  ) 
of  Steubenville  j    " 

Franklin  of  Columbus 

Lancaster  Ohio  Bank 

Mount  Pleasant 

Marietta 


Capital. 

500.000 
100.000 


100.000 
100.000 
100.000 

100.000 

100.000 
100.000 
100.000 
72.000 


11  Banks....   1.454.386 


MICHIGAN. 

Bank  of  Michigan 100.000 

1  Bank.    


FLORIDA. 

Bank  of  Florida  ..  75.000 


Bank. 


RECAPITULATION. 


Massachusetts 

Maine  .. . 

New-Hampshire  ....... 

Vermont 

Rhode  Island.., 

Connecticut 

New- York 

New-Jersey 

Pennsylvania 

Delaware 

Maryland 

District  of  Columbia.... 

Virginia 

North  Carolina 

South  Carolina 

Georgia 


20.420.000 
2.050.000 
1.791.670 
432.625 
6.118.397 
4.485.177 

20.083.353 
2.017.009 

14.609.963 
830.000 
6.250.495 
3.875.794 
5.571.100 
3.195.000 
4.631.000 
4.203.029 


Louisiana  . 
Alabama.. 
Mississippi 
Tennessee 

Ohio  

Michigan  . 
Florida  .. 


Delaware 
Do... 


329 
1 

330 


5.665.980 
•  643.503 
I  950.600 

737.8,17 

1.454.386 

10.000 

L75.000 


110.101.898 


BANKS  AND  CURRENCY. 


101 


STATEMENT  II. 
Situation  of  State  Panics,  of  which  returns  have  been  obtained. 


1st  of  January,  1811. 

STATE 

No.  of 
Banks 

Capital 

Circulation 

Specie 

I!  Massachusetts  

15 
6 
13 
1 
4 
6 
4 
1 

6.292.144 
1.250.000 
1.917.000 
269.760 
6.153.050 
4.895.202 
2.341.395 
1.500.000 

2.082.331 
496.077 
542.508 
227.423 
3.221.948 
2.730.000 
927.397 
2.942.717 

1.354.666 
255.998 
394.470 
49.474 
819.322 
850.000 
450.000 
1.499.512 

1  Rhode  Island  

II  New-  York  

II  Maryland  

1  District  of  Columbia  .  . 

50 

24.618.551 

13.170.401 

5.673.442 

• 

||                                                                      1815. 

|  Massachusetts.  ....... 

20 
8 
10 
14 
4 
37 
17 
7 
2 
1 

10.950.000 
1.380.000 
941.152 
2.027.000 
2.413.230 
11.678.238 
7.832.002 
3.266.457 
4.029.097 
754.900 

3.022.112 
1.046.783 
596.323 
549.405 
1.194.439 
6.100.248 
3.970.000 
1.546.540 
4.616.240 
975.000 

6.753.669 
444.816 
475.688 
431.859 
308.199 
1.330.829 
740.000 
259.074 
760.943 

|  Rhode  Island  

|  New-  York  

1  District  of  Columbia  .  . 

120 

45.272.076 

23.617.090 

11.505.077 

|                                                         •          1816. 

25 
11 

10 
16 

4 
38 
20 
7 
2 
1 

11.575.000 
1.410.000 
998.121 
2.317.320 
2.273.000 
12.880.397 
8.406.782 
3.311.544 
4.090.762 
724.900 

1.126.743 
901.991 
627.817 
576.526 
1.322.684 
11.401.390 
5.615.000 
2.173.453 
6.031.446 
925.000 

1.270.469 
312.079 
259.549 
358.160 
303.167 
4.005.644 
760.000 
283.838 
774.031 
431.246 

|  Rhode  Island  

|  New-  York  

1  Maryland  

[District  of  Columbia  .. 
1  Virginia.  . 

K  »   *  • 
|  Louisiana  

134 

47.987.826 

31.702.050 

8.758.183 

102 


BANKS  AND  CURRENCY. 


» 

STATEMENT  II.—  Continued. 

1st  of  January,  1820. 

STATE.               |S££f|       Capital 

Circulation    1       Deposits             Specie 

Loans 

Massachusetts 

28 
15 
10 
1 
30 
2 
6 
1 
35 
6 
1 
13 
4 
3 
3 
4 
2 
2 
3 
18 
19 
2 
2 
1 
1 

10.485.700 
1.654.900 
1.005.276 
44.955 
2.982.026 
467.937 
2.068.790 
214.740 
12.881.780 
974.900 
86.290 
5.525.319 
5.212.192 
2.964.887 
2.475.000 
3.401.510 
924.000 
321.112 
1.545.867 
4.307.431 
1.697.4i3 
202.857 
140.910 
250.000 
900.000 

2.460.697 
1.380.582 
589.114 
185.342 
738.192 
138.234 
1.058.769 
110.624 
3.282.020 
405.972 
44.435 
838.030 
2.733.746 
3.851.919 
1.063.873 
3.477.071 
459.850 
166.686 
898.129 
815.406 
1.203.869 
276.288 
52.021 
135.258 
275.447 

3.378.565 
278.924 
117.441 
46.121 
503.512 
75.780 
876.633 
152.603 
4.297.034 
211.454 
27.153 
1.444.902 
882.056 
635.761 
825.305 
1.268.982 
339.375 
958.381 
279.869 
1.035.672 
454.452 
216.748 
15]  .604 
773.652 
212.980 

1.337.172 
521.317 
228.831 
49.690 
406.867 
44.645 
301.009 
21.413 
2.003.295 
115.502 
21.030 
265.234 
993.673 
705.582 
395.791 
813.750 
290.543 
192.708 
343.882 
693.381 
433.612 
86.350 
74.715 
252.563 
79.608 

Maine  

New-Hampshire  

Rhode  Island  

New-  York  

Pennsylvania  
Delaware   

District  of  Columbia 

South  Carolina  

Louisiana  

Kentucky  

Ohio 

Mississippi.   .  . 

212 

62.735.842 

26.641.574 

19.444.959 

10.672.163 

4 

4/^o/  January,  1830.                             \J 

Massachusetts  

66 
18 
18 
10 
47 
10 
30 
5 
32 
4 
9 
9 
4 
3 
1 
9 
3 

1 

1 

20.420.0^0 
2.050.000 
1.791.670 
432.625 
6.118.397 
3.692.577 
15.637.353 
844.284 
12.810.333 
830.000 
5.525.495 
3.875.79<j 
5.571.101 
3.195.000 
1.156.000 
4.203.029 
4.665.980 
495.503 
950.600 
737.817 

4.747.784 
549.110 
743.457 
680.379 
673.836 
1.503.460 
7.959.280 
374.799 
7.308.368 
376.000 
1.733.659 
k   946.059 
r3.857.964 
1.431.543 
1.175.000 
2.719.356 
1.301.483 
522.637 
540.190 
30.550 

2.545.23U 
497.072 
173.682 
124.880 
861.031 
452.444 
10.354.500 
307.201 
6.841.448 
300.000 
1.864.397 
564.894 
1.974.171 
452.389 
793.000 
1.382.634 
2.016.560 
136.656 
547.756 
339.174 

987.213 
208.921 
226.423 
428.817 
343.389 
337.788 
1.560.291 
83.667 
2.414.669 
170.000 
777.009 
228.914 
832.732 
179.268 
129.000 
1.305.141 
1.492.674 
127.596 
77.665 
78.461 

28.59W894 
2.565.256 
2.466.291 
856.814 
6.909.705 
4.195.690 
20.370.693 
1.153.407 
21.474.173 
not  known 
6.627.270 
3^37.272 
7.698.906 
4.621.810 
2.605.504 
6.252.474 
6.796.351 
237.060 
1.927.435 
628.436 

Maine  

New-Hampshire  .... 
Vermont  
Rhode  Island 

Connecticut  

New-  York  . 

lYew-Jersey  

Pennsylvania  .  .  . 

Maryland  ....  

District  of  Columbia. 
Virginia  

North  Carolina  
South  Carolina  

Georgia  .  . 

Louisiana 

Alabama  

Mississippi  

Total.... 

Capital  on    which 
oans  are  not  given. 
New-York  4.394.000 
Delaware      830.000 

281 

95.003.557 
5.224.000 

39.174.914 

32.531.119 

11.999.643 

129.815.441 

Capital    on   which 
oans  are  given  

89.779.557 

BANKS  AND  CURRENCY. 


103 


STATEMENT  III. 


Number  and  Capital  of  the  State  Banks,  of  the  situation  of 
which  returns  have  not  been  obtained. 


STATES. 

First    of    January, 
1811          1815          1816          1820           1830 

No.  1     Capital     JNo.  I     Capital 

No.|     Capital     'JNo.  |      Capital     JNo. 

Capital 

Massachusetts.  .  . 

8 
5 

g 

4 

1 
1 

1 
1 

4 

815.250 
1.933.000 
7.253.000 
739.740 

1.576.600 
3.475.000 
210.000 
754.000 

100.000 
240.460 
895.000 

1 

10 
22 
11 
5 
5 

3 

2 
3 
5 
2 
2 

1 
2 
2 
]•> 

88 

100.000 

3.655.750 
l(i.533.08fi 
2.121,932 
3.390.580 
966.9SO 

811.838 
92.000 
1.576.600 
3.730.900 
623.580 
677.400 

100.000 
212.962 
959.175 
1.434.719 

1 
3 

10 
23 
11 
5 
5 

3 

10 
3 
5 

3 

2 

1 
4 
2 
21 

75.000 
450.000 

4.017.575 
16.493756 
2.072.115 
2.504.200 
974.500 

982469 
421.415 
2.776.600 
3.832.758 
1.502.600 
697.400 

'•  100.000 
815.281 
2.057.000 
2.061.927 

C 

o~ 

13 

1 

13 

2 

2 
1 

5 
24 
1 

3221.400 
16  919.984 
1.916.209 
1.800.000 

6.G21.841 

2.000.000 

1.673.420 
148.000 

573.915 
4.500.000 
100.000 

3 

7 
13 
1 
*1 
4 

4 

1 
] 

11 

1 

1 

792.600 
4.440.000 
1.172.725 
1.800.000 
not  known 
725.000 

3.475.000 

1.000.000 
148.000 

1.454.386 

100.000 
75.000 

New-Hampshire  . 
Connecticut. 
New-  York  
New-  Jersey  
Pennsylvania  .  .. 
Delaware  
Maryland  
Dist.  of  Columbia 
Virginia  
North  Carolina  .  . 
South  Carolina  .  . 

Louisiana  
Alabama  
Mississippi  
Tennessee  
Kentucky  
Ohio 

Indiana  
Illinois  

Michigan  
Florida  

38 

17.992.050 

36  987.514 

112 

41.834.596 

95 

39.474.769 

48 

15.188.711 

*  And  Bank  of  Wilmington,  not  included    1 

49 


STATEMENT  IV. 

A  List  of  the  Banks  which  have  failed,  or  discontinued  their 
business,  from  1st  January  1811,  to  1st  July  1830. 


Capital. 
MASSACHUSETTS. 

Essex  300.000 

New-Bedford 150.000 

Northampton 75.000 

Farmers,  (Belchertown) 100.000 

Brighton 150.000 

Button...  75.000 


6  Banks....      850.000 


MAINE. 

Maine 300.000 

Penobscot 150.000 

Wiscasset 100,000 

Hallowel    150.000 

Kennebeck 100.000 

Passamaquoddy 50.000 

Castine 100.000 

Lincoln  and  Kennebeck  . .  200.000 


8  Banks....   1.150.000 


Capital. 
RHODE  ISLAND. 

Farmers  and  Mechanics,  >  ^QQ  QQQ 

Far's.  Exchange,  Gloucester. . 

IBank..,        200.000 


NEW-HAMPSHIRE. 

Coos 100.000 

Concord..  29.600 


2  Banks....      129.600 


CONNECTICUT. 

Eagle 500.000 

Derby 100.000 

2  Banks...  600.000 


104 


BANKS  AND  CURRENCY. 


STATEMENT 

IV.  —  Continued. 

Capital. 
NEW-YORK. 

J  Barker's  Exchange  495250 

Capital. 
MARYLAND. 

Elkton                                           110000 

Utica  Insurance  Co  100.000 

Conococheague  ...                        157  500 

Columbia  ,„..-  167.650 

Cumberland                                  107  862 

Hudson                .       .                   110000 

Somerset  and  W                             90  000 

Niagara                                          108  000 

Somerset                                       195  850 

1  Pittsburgh  300.000 

Caroline                .                        103  045 

j  Washington  and  Warren  400.000 

Havre  de  Grace  132  075 

New-York  Manufacturing  Co.     700.000 

City                              .                838  540 

Franklin                 .                      510000 

Planters  P  George's  County           86  290 

•  Middle  District                             487  776 

Calskill  Aqueduct  Association 

9  Banks          1  821  162 

10  Banks....  3.378.676 
NFW  TFR^FV 

DISTRICT  OF  COLUMBIA. 
Columbia  901.200 

Union  of  Alexandria                     340000 

Jersey  City  Bank                           200  000 

Central                                           252  995 

Patterson  160  000 

Franklin.           .                           163265 

'  State  Bank  Trenton                        92  400 

i  Protection  and  Lombard               200  000 

4  Banks          1  657  460 

Franklin                                         300  000 

Monmouth  40  000 

Manufacturing                               150  000 

•  VITCGTNrA 

Salem  and  Philadelphia  .    . 

Hoboken  

OhioCo  60.000 

Charleston  M.  arid  C.  Co  32.580 

7  Banks          1  142  400 

Winchester      122  930 

Monongalia                                      25  000 

PENNSYLVANIA. 

Farmers  and  Mechanics,  ) 
Harper's  Ferry              }"•        19'480 
South  Branch                                   25  000 

Washington  .                                  92  070 

Farmers,  Merchants,  and  >             OA  Af)C. 

Farmers  and  Mechanics  )              -,  AQt. 
ofGreencastle               \"'        "4.485 

Mech's.  Jefferson  Co.    \'~       ZbA^ 
Warrentown  60.000 

Do     do     of  Pittsburgh                 65  337 

Leesburg  Union     .                        20  000 

Juniata                                            164478 

Loudon  Co  30.000 

Marietta  and  Susquehan- 
nah  Trading  Co.               •"      239'430 
Pennsylvania  Agr'l.  and 
Man'g.Bank                     •"      lla102 
Delaware  Bridge  ...                     99  715 

10  Banks....      421.415 
NORTH  CAROLINA. 

Allegheny  .                                   144  807 

Beaver                                                7fi  PS^l 

Fayetteville  

Bertie  

Centre          .                                 159  610 

Huntingdon  123  122 

SOUTH  CAROLINA. 

Northumberland,  Union 

Cheraw                                          20  000 

and  Columbia 

Hamburg  ,  

North-  Western  Bank  77.688 

Union  of  Pennsylvania  124.792 

Silver  Lake  64.882 

IBank  20.000 

Fayette,  New-Salem  

Harmony  , 

Wilkesbarre  Branch  

GEORGIA. 

Darien                                          480  000 

16  Banks....   1.811.558 

1  Rinlr 

DELAWARE. 

LOUISIANA. 

Planters  Bank                                SOO  000 

Farmers  and  Mechanics  > 

Bank  of  Louisiana  724  000 

of  Delaware                 <"'       45-000 

IBank.    

2  Banks....      924.000 

BANKS  AND  CURRENCY. 


105 


STATEMENT  IV, -Continued. 


Capital. 
ALABAMA. 

Planters  and  Merchants 164.175 

Tombeckbe 156.937 

Steamboat 16.000 


3  Banks....     337.112 


TENNESSEE. 

Fayelteville  Transfer 110.000 

Farmers  and  Mechanics  >  iftnonn 
of  Nashville                   {••'' 

Nashville  and  Branches 994.560 

Tennessee  Bank,  (old) 371.107 

3  Brandies  of  do 300.0GO 

.Mashvillo  Brarif  h  of  do 20t».77f> 

Rogeraville  Branch   do 67.140 

4  Banks  and  5  Branches  .  2.229.782 


KENTUCKY. 
Farmers  and  Mechanics  \ 

of  Lexington,  (slock  fy  £  . . .      489.700 

notes  at  par)  J 

Versailles 111.180 

Kentucky  and  Branches 2.756.220 

Flemingsburg 61.626 

Limestone 135.825 

Shepherdsville 55.880 

Hinkston  Exporting  Co 50.120 

New-Castle 40.520 

Cynthiana 47.900 

Centre  Bank  of  Kentucky ....      120.000 

Union  of  Elizabelhtox vn 39.400 

Farming  and  Commercial  Bk.        37.219 

Greenville 46.640 

Newport 54.700 

Southern  Bank  of  Ky 1 17.222 

Farmers  of  Harrodsburg 81.000 

"     "       Somerset 22.379 

Lancaster  Exporting  Co 39.900 

Insurance  

Barboursyille 

Cumberland  Bank  of  Burkville 

Burlington    

Bank  of  Columbia 

Frankfort 

Georgetown 

Greensburgh 

Green  River 

Christian  Bank 

Bank  of  Henderson 

:     of  Washington 

Commercial  Bank  of  Louisville 

Mount  Sterling 

Morgantown 

Monticello   

Farmers  Bank  of  Jessamine 

Owingsville  

Petersburg  Steam  Mill 

Farmers  Bank  of  Gallatin 

Far's.  and  Mechanics  of  Logan 

Do.    do.    of  Shelby ville 


Amount  carried  forward     2.307.431       165 


Capital. 

Amount  brought  forward  2.307.431 
Far's.  and  Mech's.  of  Springfield 

Winchester  Com'l 

Commonwealth  Bank 2.000.000 

(tiQminaL) 

18  Banks....  4.307.431 


OHIO. 

Miami  Exporting  Co.  ) 
Cincinnati  j  '" 

Columbia,  New  Lisbon 

Granville  Alex'n.  Soc 

Farmers  Bank  of  New  Salem. 

Gorman  of  Wooster 

Muskingum 

Farmers  arid  Mechanics  ) 
of  Cincinnati  j  "  ' 

Cincinnati  .... 


Dayton  Manufacturing , 

Lebanon  Miami  Bank'g.  Co. . , 

Urbana  Banking  Co ,., 

Farmers  and  Mechanics  ) 

Man'g.  Chilicothe          j    '  ' 

Hamilton 

Zanesville  Canal  and       > 

Manufacturing  Co.       $  "  ' 

West  Union 

Lake  Erie 

Steubenville 

Muskingum  of  Zanesville 

Jefferson  Co 

Bank  ofXenia.. . 


468.9G6 

50.000 

12.002 
57.000 
25.000 
97.800 

184.776 

216.430 
61.622 
86.491 
49.685 

99.575 
22.707 
79.125 

100.000 
100.000 
100.000 
100.000 


18  Banks 1.911.179 


INDIANA. 

Farmers  and  Mechanics  Bk. . .  1 30.000 

Bank  of  Vincennes 127.624 

2  Banks....  257.624 
*.        ILLINOIS. 


Edward-svnle 


105.720 
57.190 


2  Banks....     162.910 


MISSOURI. 

Bank  of  Missouri 250.000 

"    "    St.  Louis 150.000 


2  Banks....     400.000 
MICHIGAN. 
"iBank. 


Munroe 


10.000 


RECAPITULATION. 

129  Banks $24.212.339 

36    do not  known. 


106 


BANKS  AND  CURRENCY. 


STATEMENT  V. 

Depreciation,  per  cent.,  of  Bank  Notes,  during  the  suspension 

of  specie  payments. 


'hilatlel-  I    Ne\v- 
phia.     I    York. 


1814.  September  . 

October 

November . 

December  . 
1915.  January  . . . 

February  . . 

March 

April 

May 

June 

July 

August .... 

September. 

October  . . . 

November. 


10 
14 

16 

20 

19 

20 

21  \ 

15 


14 
12J 
13 
16 


Balli- 
more. 


18J  5.  December 

1816.  January  .. . 
February  . . 

March 

April 

May 

June 

July 

A  ugust 
•September . 
October.. .. 
November  . 
December  . 

1817.  January  . . . 
February  . . 


Hiil:i,l«;|. 

_!^ia;_ 
14 
11 
11 

m 


New- 
Vorlt. 


STATEMENT  VI. 


Average  amount,  for  the  years  1819^-1829,  of  the  principal 
items  of  the  Situation  of  the  Bank  of  the  United  States. 


1319 
1820 
1821 

1822 
1893 
1824 
1825 

1826 
1827 
1828 
1829 


Discounts. 


32211.674 

28.808.267 
27.099.050 
28.574.893 
30.584.919 
29.478.255 
29.327.219 
29.592.103 
27.948.592 
30.320.944 
32.703280 


336.7(50 
1.526.600 
1.598.473 
2.394.688 
2.588.245 
2.563.672 
3.270.699 
3.592.145 
4.568.297 
6.018.784 
8.417.021 


7.236.153 
8.258.701 
11.859.296 
13.116.004 
10.911.700 
13.373.095 
19.807.fiG5 
17.885.210 
17.724.192 
17.127.077 
13.925.701 


Seres"      Real  Estate.      Specie. 


39.784.587 

38.593.568 

40.556.619 

44.085  785 

44.084.864 

45.415  022  1.393.193 

52.405.583  1.566.728 


51.069.45!- 
50.244.081 


53.966.805  2.298.352 
55  046.002  2.474.750 


245.846 
579.152 
736.370 


1.745.566 
2.118.560 


2.743.834 
5.214.773 
6.469.224 
3.711.145 
4.899.686 
5.909.351 
4.686.557 
5.174.643 
6.327.758 
6.205.107 


5.734.682 

6.581.628 

6.990.073 

G.3G5.570 
10.401.786 
12.918.108 
12.885.829 
12.578.523  10.235 
13.727274 


15.172.164 


5.056  829 

4  410.332 

5  609.220 
5.502.335 
4071271 
5.H35.491; 
8.836.646 

5528 
10.808.244 


14.454.169  12.414.390 


15011.352 


The  actual  amount  of  circulation  is  generally  four-fifths  of  the  gross  amount,  the 
rest  being  notes  in  transitu,  or  accumulated  in  offices  where  they  are  not  payable. 


STATEMENT  VII. 
Actual  circulation  of  the  Bank  of  the  United  States  in  Septem- 
ber, 1830,  showing  where  the  Notes  were  payable. 


Where  payable. 


Notes  in 
circulation. 

Bank  United  States 1.367.180 

Portland   79.280 

Portsmouth 101.985 

Boston  271.180 

Providence 1 13.920 

Hartford   171.532 

New-York   834.733 

Baltimore   528.638 

Washington  647.602 

Richmond 469.440 

Norfolk 532.400 

^ayetteville  713.760 

Charleston   835.840 

Savannah 522,605 


Amount  carried  forward     7.190.095 


Where  payable. 

Amount  brought  forward 

Mobile 

New-Orleans   

-St.  Louis 

Nashville   

Louisville 

Lexington 

Cincinnati  . . , 

Pittsburgh 

BufTaloe 

Burlington   

Agencies  Cincinnati    > 
and  Chihcothe         < 


Philadelphia,  February,  1831, 

Just  Published,  by  Carey  <$f  Lea, 

And  sold  in  Philadelphia  by  E.  L.  Carey  <$•  A.  Hart ;  in  New- York  by  G.  4' 
C'.  $  H.  Carvill;  in  Boston  by  Carter  <§f  Hendee — in  Charleston  by  W.H.  Berrett 
—in  New-Orleans  by  W.  M'Kean ;  by  the  principal  booksellers  'throughout  the 

Union, 

AND  IN  LONDON,  BY  JOHN  MILLER,  ST.  JAMES'S  STREET. 
VOL.  V. 

(To  be  continued  at  intervals  of  three  months,) 

OF  THE 

ENCYCLOPAEDIA    AMERICANA : 

A 

POPULAR    DICTIONARY 

OF 

ARTS,  SCIENCES,  LITERATURE,  HISTORY,  AND  POLITICS, 

BROUGHT  DOWN,  TO  THE  PRESENT  TIME,  AND  INCLUDING  A  COPIOUS  COLLECTION 
OF   ORIGINAL   ARTICLES   IN 

AMERICAN  BIOGRAPHY: 

On  the  basis  of  the  Seventh  Edition  of  the  German 

CONVERSATIONS-LEXICON. 


EDITED  BV  DR.  FRANCIS  LIEBER, 
ASSISTED  BY  EDWARD  W1GGLESWORTH,  ESQ. 


To  be  completed  in  twelve  large  volumes,  octavo,  price  to  subscribers,  bound  in  cloth,  two 
dollars  and  a  half  each. 

EACH  VOLUME  WILL  CONTAIN  BETWEEN  GOO  AND  700  PAGES. 


THE  CONVERSATION  LEXICON,  of  which  the  seventh  edition  in  twelve  volumes 
has  lately  been  published  in  Germany,  originated  about  fifteen  years  since.  It 
was  intended  to  supply  a  want  occasioned  by  the  character  of  the  nge,  in  which 
the  sciences,  arts,  trades,  and  the  various  forms  of  knowledge  and  of  active  life, 
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SUGGESTIONS 


ON    THE 


BANKS    AND    CURRENCY 


O  F 


THE  SEVERAL  UNITED  STATES, 


IN  REFERENCE    PRINCIPALLY  TO  THE 


SUSPENSION  OF  SPECIE  PAYMENTS. 


BY  ALBERT  GALLATIN. 

X1 

NEW- YORK: 

WILEY   AND   PUTNAM. 

1841. 


Printed  by  J.  P.  Wright,  IS  New  Street,  N.  Y. 


TABLE  OF  CONTENTS. 


Page 

PRELIMINARY  OBSERVATIONS, 0 

Presumed  Advantages  of  a  Paper  Currency, 9 

Tendency  to  degenerate  into  Irredeemable  Paper,      ....  20 

Fatal  Consequences, 22 

CAUSES  AND  INCIDENTS  OF  THE  BANK  SUSPENSIONS,   ......  25 

Suspension  of  1837, 25 

Resumption  of  1838, 37 

Subsequent  Suspensions, 41 

REMEDIES, 46 

By  the  States, 46 

State  Debts — Pennsylvania, • 47 

Restrictive  System — Chartered  Banks  of  New  York,     ...     54 

Free  Banking — Law  of  New  York, 67 

By  the  United  States, 86 

Specie  Treasury, 86 

A  National  Bank, 88 

A  Bankrupt  Law, 96 

APPENDIX. 

Documents  relating  to  the  Resumption  of  1837, 101 

Letters  of  the  Author,  written  in  April  and  May,  1830,  .     .     .  120 

I.  Situation  of  the  Banks  in  May  1837  and  May  1838,     .     .  123 

II.  Approximate  View  of  the  Population,  Banking  Capital, 

and  Debts  of  the  several  States  and  Territories,     .     .     .  124 


PRELIMINARY  OBSERVATIONS. 


ALL  the  Banks  of  the  United  States  are  joint  stock  companies, 
generally  incorporated  by  the  special  laws  of  the  several  States  ; 
in  a  few  late  instances  established  in  conformity  with  the  provi- 
sions of  a  general  law.  In  neither  case  are  the  shareholders 
responsible  beyond  the  amount  of  the  capital  subscribed.  All 
these  joint  stock  companies  are  banks  of  deposit,  discount  and 
issue ;  they  all  discount  negotiable  paper,  purchase  and  sell  do- 
mestic and  occasionally  foreign  bills  of  exchange,  receive  depo- 
sits, or  open  cash  credits  to  individuals,  and  issue  bank  notes, 
always,  nominally  at  least,  payable  on  demand  in  specie  (a). 
These  notes  have  become  the  local  and  sole  currency  of  the 
several  places  or  sections  of  country  where  they  are  respective- 
ly made  payable.  Banking  in  America  always  implies  the  right 
and  the  practice  of  issuing  paper  money  as  a  substitute  for  a 
specie  currency. 

On  the  1st  of  January  1830  and  1840,  respectively,  the  capi- 
tal, liabilities  payable  on  demand,  and  resources,  of  all  the  char- 
tered banks  in  the  United  States,  were,  as  far  as  can  be  ascer- 
tained, nearly  as  follows,  viz. : 

1830.  1840. 


Number  of  Banks 322  659 


Capital $  145,000,000  $343,000,000 

Actual  Circulation  and  Deposits,  payable  on  demand,  100,000,000  158,000,000 

Other  liabilities not  great  44,000,000 

245,000,000  545,000,000 

Discounted  Paper,  Stocks  and  Securities,  altogether  216,000,000  513,000,000 

Specie 20,000,000  32,000,000 

236,000,000  545,000,000 


(a)  Post-notes,  not  payable  on  demand,  may  be  sold  and  purchased,  as  other 
negotiable  paper,  vary  in  value,  and  do  not  form  part  of  the  currency  proper. 

2 


10 

There  can  be  no  doubt  that,  in  their  origin,  the  Banks  were 
instituted  for  the  purpose  of  affording  accommodations  to  the 
commercial  interest,  and  of  supplying  the  want  of  a  capital  pro- 
portionate to  the  extent  of  the  legitimate  commerce  of  the  coun- 
try. The  prodigious  increase  of  banking  capital  and  accommo- 
dations within  the  last  ten  years,  so  much  exceeding  that  which 
might  be  actually  wanted  for  promoting  the  productive  industry 
of  the  country,  has  been  attended  with  consequences  affecting 
all  classes,  and  so  fatal,  in  reference  to  the  currency,  that  it  ap- 
pears proper,  in  the  first  place,  to  ascertain  what  are  the  benefits 
actually  bestowed  on  the  community  at  large  by  the  substitution 
of  a  paper  for  a  specie  currency:  and  these  advantages  must  be 
reduced  to  their  true  value,  by  distinguishing  those  which  belong 
exclusively  to  the  issues  of  paper  money,  from  those  which 
might  be  equally  enjoyed  with  banks  and  bankers  issuing  no  pa- 
per currency  and  carrying  on  every  other  species  of  banking 
operations. 

These  advantages  appear  to  be,  commercial  punctuality,  and 
the  facilities  afforded  in  effecting  payments,  collecting  debts,  and 
making  remittances  ;  the  conversion  of  unproductive  into  pro- 
ductive capital ;  the  saving  of  a  capital  tantamount  to  the  enjoy- 
ment of  an  additional  capital,  and  bearing  a  certain  proportion 
to  the  amount  of  paper  issues.  All  but  the  last  might  be  equally 
attained  with  banks  or  private  bankers  who  issued  no  paper 
currency. 

Punctuality  in  fulfilling  engagements  should  be  practised  by 
all ;  but  it  is  essentially  a  commercial  virtue.  Credit,  at  least  to 
a  certain  extent,  is  absolutely  necessary  to  commerce.  Every 
merchant  must,  for  the  fulfilment  of  his  own  engagements,  de- 
pend principally  on  the  punctual  payment  of  the  debts  due  to  him. 
This  punctuality  is  so  necessary,  and  the  advantages  derived 
from  it  have  become  so  habitual,  that  the  memory  of  its  origin 
may  be  lost.  It  was  indubitably  due  to  the  establishment  of 
banks.  At  the  close  of  the  war  of  Independence,  Philadelphia 
was  the  only  place  in  the  United  States  where  commercial 
punctuality  was  general,  and  that  city  was  indebted  for  it  to 
the  Bank  of  North  America.  The  same  effect  was  succes- 
sively produced,  as  banks  were  established,  in  New- York, 
Boston,  Baltimore,  and  the  other  commercial  cities ;  and  final- 


11 

ly  almost  universally,  or  wherever  country  banking  has  pene- 
trated. 

It  must  be  observed,  that  a  very  small  banking  capital  was 
sufficient  for  that  purpose,  since  that  object  was  attained,  in  each 
of  the  several  commercial  cities,  by  a  single  bank,  with  a  capital 
of  not  more  than  five  to  eight  hundred  thousand  dollars.  The 
merchant  who  did  not  pay  his  discounted  note  could  no  longer 
receive  accommodations  from  the  bank  ;  and  the  protest  of  a 
note,  either  discounted  or  placed  in  the  bank  for  collection,  be- 
came soon  sufficient  to  prostrate  his  credit.  But  the  result  would 
have  been  the  same,  had  the  bank  been  only  one  of  deposit  and 
discount,  and  not  of  issue.  Commercial  punctuality  is  as  indis- 
pensable and  universal  in  all  the  cities  of  continental  Europe  as 
in  America,  though  no  banks  of  issue  existed  there,  except  in 
Amsterdam,  in  Paris,  and  very  lately  in  some  other  towns  of 
France.  This  great  advantage,  though  it  had  its  origin  here  in 
banks  of  issue,  is  not  one  which  belongs  exclusively  to  such 
banks. 

The  same  observation  will  apply  to  the  conversion  of  unpro- 
ductive into  productive  capital,  which  has  been  effected  by  our 
banks.  Every  merchant,  every  person,  who  enjoys  or  earns  a 
certain  income,  always  keeps  on  hand  a  certain  amount  of  cur- 
rency proportionate  to  his  engagements,  to  his  wealth,  and  to  his 
wants.  So  long  as  it  remains  in  his  possession,  it  is  altogether 
unproductive.  Deposited  in  bank,  it  becomes  a  part  of  the  funds 
applied  by  the  banks  to  discounts,  or  in  other  words,  to  advances 
made  to  the  commerce,  manufactures,  and  generally  to  the  pro- 
ductive industry  of  the  country.  But,  in  order  to  produce  that 
effect,  it  is  sufficient  that  the  bank  should  be  one  of  deposit,  and 
not  that  it  should  issue  bank  notes.  Throughout  Europe,  the 
same  description  of  persons  who  here  make  deposits,  or,  which 
is  the  same  thing,  who  keep  an  account  with  our  banks  of  issue, 
do  deposit  or  keep  an  account  with  private  bankers  who  issue 
no  bank  notes.  And  those  bankers  give  the  same  facilities  in 
effecting  payments,  collecting  debts,  and  making  remittances, 
which  are  afforded  by  the  American  banks  of  issue. 

It  is  therefore  principally,  if  not  exclusively,  in  the  substitution 
of  a  paper  currency,  which  costs  little  or  nothing,  for  one  in  gold 
and  silver,  which  has  an  intrinsic  value,  that  the  benefit  derived 


12 

from  the  paper  issues  does  consist.  The  actual  circulation  of  all 
the  banks  in  the  United  States  does  not,  when  in  a  healthy 
situation,  much  exceed  eighty  millions  of  dollars.  Deducting 
twenty  millions  in  specie,  which  the  banks  must  keep,  on  an 
average,  to  meet  demands  on  that  part  of  their  liabilities,  there 
remain  sixty  millions,  which,  instead  of  being  applied  to  the 
purchase  of  gold  and  silver  currency,  are  applied  to  productive 
purposes,  and  add  as  much  to  the  productive  capital  of  the 
country.  It  may  already  be  inferred  that  the  deposits  must  not 
be  included  in  the  computation,  and  that  the  profit  consists  only 
of  the  difference  between  the  actual  issues  and  the  specie  kept 
to  meet  demands  on  that  account :  but  this  branch  of  the  subject 
requires  further  explanation. 

The  exchange  of  the  commodities  produced  in  different  coun- 
tries, or  in  different  districts  of  the  same  country,  is  the  basis  of 
all  the  commercial  transactions  between  those  countries  or  dis- 
tricts. As  that  commerce  becomes  more  extensive  and  regular, 
the  principle  of  the  division  of  labor  is  applied ;  the  purchase 
and  importation  of  the  foreign,  and  the  exportation  and  sale  of 
the  domestic  commodities  given  in  exchange,  become  distinct 
branches  of  business  ;  masses  of  respective  credits  and  debits 
are  created  ;  and  by  far  the  greater  part  of  the  actual  payments 
is  effected  by  the  transfer  of  those  credits,  through  the  medium 
of  foreign  or  domestic  bills  of  exchange. 

A  small  portion  only  is  paid  in  currency ;  for  when  the  balance 
of  indebtedness  is  large,  an  extension  of  credit  is  generally 
granted.  In  large  transactions,  even  not  of  a  commercial  nature, 
such  as  the  purchase  of  land,  it  will  be  found  that  the  payments 
are  also  principally  made  by  the  transfer  of  credits  accumulated 
for  that  purpose,  and  rarely  to  a  large  amount  in  specie. 

The  deposits  in  banks  are  but  occasionally  made  in  specie. 
They  generally  consist  of  transfers  of  credit  from  banks,  or  arise 
from  a  note  owned  by  the  party,  and  discounted  in  his  favor. 
Whatever  their  origin  may  be,  they  are  credits  opened  in  the 
books  of  banks,  in  favor  of  individuals  to  whom  they  are  pay- 
able on  demand.  And  as  payments  between  country  and  coun- 
try, or  district  and  district,  are  effected  by  the  transfer  of 
credits  through  the  medium  of  bills  of  exchange,  so  also  pay- 
ments in  all  the  transactions  of  any  importance,  between  inhabi- 


13 

tants  of  the  same  city  or  district,  are  effected  by  checks  on  the 
banks,  that  is  to  say,  by  the  transfer  of  those  bank  credits  which 
are  called  deposits. 

These  checks,  like  bills  of  exchange,  may  be  considered  as  a 
substitute  for  currency ;  or,  as  a  special  currency,  between  deal- 
ers and  dealers,  when  the  credit  in  bank  (deposit)  is  in  favor  of 
a  dealer  ;  between  consumers  and  dealers,  when  the  deposit  has 
been  made  by  a  person  not  in  active  business.  They  differ  from 
bank  issues,  in  that  they  are  not  received,  as  bank  notes  are,  as 
a  full  payment  of  a  debt ;  and  that,  if  not  paid  by  the  bank,  the 
drawer  is  still  responsible.  The  bank  note  is  taken  in  payment 
solely  from  the  general  confidence  reposed  in  the  bank  ;  the 
check,  from  the  special  confidence  placed  in  the  drawer. 

But  the  deposits,  or  cash  credits  on  the  books  of  a  bank,  are  a 
liability  of  the  bank  payable  on  demand  like  bank  notes.  In  re- 
ference to  such  bank,  the  actual  issues  and  deposits,  though  not 
always  pressing  on  it  at  the  same  time  and  to  the  same  extent, 
are  liabilities  of  the  same  nature,  and  for  which  provision  must 
be  equally  made. 

Of  the  great  benefits  derived  from  these  deposits,  considered 
as  substitutes  for  currency,  and  effecting  payments  with  much 
greater  facility  than  can  be  done  with  the  precious  metals,  there 
can  be  no  doubt.  The  perpetual  transfers  of  twelve  millions  of 
dollars  of  individual  deposits,  that  is  to  say,  of  credits  in  favor 
of  individuals,  in  the  several  banks  of  the  city  of  New- York, 
together  with  one  or  two  millions  of  notes  of  a  large  denomina- 
tion, which  pass  daily  from  bank  to  bank,  and  make  no  part  of 
the  general  circulation,  are  sufficient  to  effect  annually  payments 
amounting  to  about  twelve  hundred  millions.  It  appears  by  the 
late  statements  of  the  Bank  of  France,  that  although  the  private 
deposits  of  that  institution  do  not  exceed  seventy  millions  of 
francs,  the  transfers  (mouvemens)  of  these  were  sufficient  to  ef- 
fect, in  six  months,  payments  (liquidations)  amounting  to  seven- 
teen hundred  and  forty-two  millions.  By  an  analogous,  though 
not  perfectly  similar,  process,  the  actual  daily  payment  of  an  ul- 
timate balance  of  two  or  three  hundred  thousand  pounds  in  spe- 
cie or  in  notes  of  the  Bank  of  England,  effects  daily  payments  of 
four  or  five  millions  sterling  in  the  clearing-house  of  the  London 
bankers.  The  same  benefits  were  derived  from  the  ancient 


14 

Bank  of  Amsterdam  ;  and  the  Bank  of  Hamburg  is  founded  on 
the  same  principle.  Neither  of  these  institutions  ever  issued  pa- 
per money,  or  was  even  a  bank  of  discount.  It  was  only  as 
banks  of  deposit,  and  solely  by  the  transfers  of  credits  substituted 
for  payments  in  specie,  that  they  accomplished  the  purpose  of 
discharging,  with  increased  facility,  almost  all  the  engagements 
growing  out  of  the  commercial  transactions  of  those  two 
cities. 

It  is  important  to  observe  that,  if  all  our  State  banks  were 
converted  into  banks  only  of  discount  and  deposit,  but  not  of  is- 
sue, the  failure  of  one  or  more  of  them  could  affect  only  the  de- 
positors, and  not  the  community  at  large  ;  and  that,  if  even  the 
supposition  of  a  general  failure  by  all  such  banks  were  admissi- 
ble, it  would  only  derange  the  beneficial  system  of  transfers  of 
credit,  but  would  not  affect  the  standard  of  value,  which,  since 
no  paper  currency  had  been  put  in  circulation,  would,  for  the 
community,  continue  to  be  the  legal  coin  of  the  country,  and  no- 
thing else  ;  whilst,  under  the  existing  system,  the  deposits,  blend- 
ed, as  liabilities  payable  on  demand,  with  the  issues  of  the  banks, 
contribute  to  endanger  their  safety,  and  may  occasionally,  in 
our  great  cities,  cause  a  suspension  of  specie  payments. 

On  the  other  hand,  since  those  deposits  would  still  exist  and 
produce  the  same  beneficial  effects,  if  there  were  no  other  banks 
but  only  of  discount  and  deposit,  it  does  not  appear  correct  to 
reckon  their  amount  as  part  of  the  additional  capital  acquired 
by  the  establishment  of  our  banks  of  issue.  It  may,  however, 
be  objected,  that  in  rejecting,  as  not  belonging  to  banks  of  issue, 
the  advantages  which  might  have  been  obtained  by  banks  only 
of  discount  and  deposit,  it  has  been  taken  for  granted  that  such 
private  banks  or  joint  stock  banking  companies,  issuing  no  paper 
currency,  might  be  established  and  sustained  in  America.  This 
position  may  be  denied ;  and  it  may  be  asserted,  that  banks  giv- 
ing sufficient  accommodation  to  the  productive  industry  of  the 
country  could  not  exist  here,  unless  they  had  the  right  to  issue 
bank  notes. 

This  assertion  might  have  been  quite  correct  fifty  years  ago, 
and  is  partly  true  even  now.  It  must  be  admitted  in  the  first 
place,  that  there  are,  as  yet,  but  few  men  in  the  United  States, 


15 

With  a  sufficient  capital  to  carry  on  with  safety  banking  opera- 
tions, and  fewer  still  who  do  not  find  more  profitable  employ- 
ment for  that  capital.  The  necessity  of  concentrating  for  thai 
purpose  small  capitals,  and  of  forming  banking  associations,  is  ob- 
vious :  and  although  the  shareholders  in  such  companies  are  satis- 
fied with  dividends  generally  not  exceeding  the  ordinary  rate  of 
interest,  and  always  falling  short  of  the  profits  of  a  private 
banker,  the  machinery  of  such  institutions  is  much  more  expen- 
sive, and  their  gross  profits  must  at  least  be  sufficient  to  pay 
the  interest,  to  defray  those  expenses  and  to  cover  contingent 
losses. 

An  examination  of  the  statements  of  the  State  banks  will 
show,  that  the  resources  of  those  of  the  commercial  cities,  par- 
ticularly of  those  with  a  large  capital,  consist  principally  of  their 
deposits;  and  that,  though  their  profits  would  be  somewhat  di- 
minished, they  would  be  still  sufficient  to  enable  the  banks  to 
continue  their  legitimate  operations. 

On  the  1st  of  January,  1841,  the  twenty-two  chartered  banks 
of  the  city  of  New  York,  with  a  capital  of  little  more  than 
twenty  millions  of  dollars,  had  more  than  twelve  millions  of 
individual  deposits,  besides  near  two  millions  deposited  by  coun- 
try or  foreign  banks,  and  a  gross  circulation  of  apparently  about 
five,  but  in  fact  of  less  than  three  millions  (b).  Their  loans  and 
discounts  exceeded  twenty-seven  millions,  and  the  stocks  owned 
by  them  were  less  than  three  millions.  Had  they  been  only 
banks  of  discount  and  deposit,  the  aggregate  of  their  assets  bear- 
ing interest,  and  amounting  to  thirty  millions,  would  have  been 
lessened  about  three  millions,  or  ten  per  cent.  This  would,  in 
the  aggregate,  have  reduced  their  dividends  from  6|  to  6  per 
cent.  But  those  returns  embraced  several  banks  which  have 
incurred  heavy  >  losses,  and  made  no  dividend.  The  sound 


(6)  They  had  in  their  possession  on  the  same  day  more  than  three  millions,  in 
notes  of  each  other  or  of  other  banks.  The  returns  of  the  city  banks  are  made 
before  they  have  exchanged  the  notes  of  each  other  received  during  the  day.  On 
the  19th  February,  1834,  the  apparent  circulation  of  nineteen  city  banks  amounted 
to  4,740,000,  and  the  actual  circulation  after  the  exchanges,  to  3,040,000.  (Report 
of  Union  Committee.) — The  daily  payments  in  notes  and  checks  into  the  several 
city  banks  amount  to  about  4,000,000,  in  ordinary  time3. 


16 

banks  would  still  have  divided  at  least  seven  per  cent,  which 
is  amply  sufficient  ;  and,  by  converting  the  stocks  owned 
by  them  into  discounts,  there  would  have  been  no  diminution  in 
the  amount  of  their  commercial  loans. 

On  the  other  hand,  the  country  banks,  under  which  denomi- 
nation must  be  included  those  of  all  the  interior  States  and  of 
the  interior  parts  of  the  other  States,  depend  principally  on  their 
circulation ;  and  although,  in  many  places,  the  dividends  have 
been  extravagant,  yet  it  must  be  acknowledged  that,  if  the  bank 
notes  were  altogether  suppressed,  the  banking  capital  now  em- 
ployed in  the  country  would  be  considerably  reduced,  and  be- 
come confined  to  those  towns  which  are  the  principal  centres  of 
its  commercial  transactions. 

Strong  reasons  might  be  adduced  to  show  that  such  a  reduc- 
tion would  ultimately  be  beneficial.  It  is  extremely  doubtful 
whether  the  banking  system,  with  its  indispensable  strict  punc- 
tuality, can,  under  any  circumstances,  be  beneficially  applied  to 
purely  agricultural  purposes.  The  only  material  improvement 
which  has  during  the  last  fifty  years  taken  place  in  Virginia,  her 
having  become  one  of  the  first  wheat-growing  States,  cannot  be 
ascribed  to  her  banks.  In  every  other  respect,  what  has  she 
gained  by  the  circulation  of  bank  notes ;  and  what  progress  has 
she  made,  since  the  introduction  of  banks,  in  agriculture,  manu- 
factures, commerce,  or  population?  The  situation  of  the  plant- 
ers who  cultivate  the  fresh  and  fertile  soil  of  Alabama  and  of 
Mississippi,  affords  an  irrefragable  proof  of  the  calamities  inflict- 
ed on  an  agricultural  country  by  an  exaggerated  banking  sys- 
tem, and  by  excessive  issues. 

The  inquiry  might  be  pursued  farther.  Yet  as  those  evils 
may  be  ascribed  to  the  abuse  and  not  to  the  temperate  use  of 
banks  and  bank  paper,  and  as  the  advantages  of  banking  are 
now  considered  independent  of  the  evils  it  produces,  it  may  for 
the  present  be  conceded  that  banks  purely  of  discount  and  de- 
posit could  not,  in  the  interior  parts  of  the  country,  be  generally 
substituted  for  banks  of  issue  ;  and  that,  in  computing  the  addi- 
tional capital  acquired  by  the  banking  system,  the  deposits  in 
country  banks  may  be  added  to  the  amount  of  issues.  This 
would  make  the  whole  addition  to  the  capital  ninety  instead  of 
sixty  millions.  The  estimate  is  founded  on  the  present  reduced 


,17 

amount  of  issues  and  deposits,  and  not  on  that  of  the  years 
1836-37,  when  they  were,  together,  fifty  per  cent,  greater  (c). 

The  increase  of  capital,  be  it  more  or  less,  appears  to  be,  if 
not  absolutely  the  only,  at  least  the  principal  advantage  derived 
from  a  paper  currency.  It  has  been  denied  by  some,  that  even 
this  did  confer  any  benefit  on  the  community  at  large.  It  has 
been  asserted  that  the  whole  profit  was  engrossed  by  the  issu- 
ers, or,  at  best,  shared  only  by  those  whom  the  issues  of  paper 
enabled  to  obtain  additional  loans  of  money ;  that  this  profit,  in- 
stead of  being  in  any  way  advantageous  to  the  community,  was 
made  at  its  expense ;  that  it  made  the  rich  richer,  and  the 
poor  poorer ;  and  that  the  whole  system  was  one  of  fraud  and 
iniquity. 

It  is  not  perceived  on  what  ground  the  charge  can  be  sus- 
tained, unless  it  be  insisted  that  the  state  of  society,  in  its  present 
civilization,  is  so  unjust  and  nefarious  that  every  addition  to  the 
capital  of  a  nation,  every  increase  of  national  wealth,  produces 
the  same  baneful  effects,  and  is  a  positive  evil.  That  such  in- 
crease, when  effected  by  the  introduction  of  a  paper  currency,  is 
always  dangerous,  and  may  be  attended  with  most  calamitous 
consequences,  is  fully  admitted.  But  if  a  complete  guarantee 
could  be  obtained  that  the  paper  currency  would  always  remain 
equal  in  value  to  gold  and  silver,  the  danger  would  .be  avoided. 
And  so  long  as  this  is  the  fact,  the  additional  capital,  thus  sup- 
plied, operates  in  the  same  manner,  and  is  attended  with  the  same 
effects,  as  any  other  increase  of  national  wealth. 

The  immediate  benefits  of  any  acquisition  of  wealth  or  capital 


(c)  In  the  report  of  the  Secretary  of  the  Treasury,  of  April,  1840,  Statement  JJ, 
page  1374,  it  is  thus  estimated  : 

1st  January,  1837.        1st  January,  1840. 

Actual  Circulation 112,652,000  86,170,000 

Deposits 127,397,000  75,696,000 

240,049,000  161,866,000 


Our  estimate  is  as  follows  : 

Actual  Circulation 86,000,000 

Country  Deposites 37,000,000 

123,000,000 

Deduct  Specie  in  Banks 33,000,000 

Additional  Capital  gained  by  our  Banking  system 90,000,000 


18 

most  certainly  accrue  to  those  who  have  acquired  it.  This  ac- 
quisition makes  the  rich  richer,  or,  to  speak  more  correctly,  par- 
ticularly in  this  case,  it  increases  the  number  of  those  who  be- 
come rich  or  independent.  But  this  is  not  done  at  the  expense 
of  the  community :  the  process  does  not  make  the  poor  poorer. 
On  the  contrary,  every  increase  of  capital  puts  in  activity  a 
greater  quantity,  and,  all  other  things  remaining  equal,  has  a  ten- 
dency to  enhance  the  wages  of  labor.  This  is  consistent  with 
theory,  and  confirmed  by  experience.  Production  is  always  in- 
creased in  proportion  to  the  increased  wealth  of  a  country, 
labor  is  better  paid,  commodities  are  rendered  cheaper,  and 
more  comforts  brought  within  the  reach  of  the  poor.  In  Ameri- 
ca, the  quantity  of  uncultivated  land,  a  dormant  capital  which 
perpetually  calls  for  labor  in  order  to  render  it  productive,  is  the 
primary  cause  of  that  greatest  of  all  the  worldly  blessings  this 
nation  enjoys.  Manual  labor  is  better  remunerated  in  America 
than  in  any  other  country.  But  even  here,  circulating  capital, 
that  capital  which  consists  of  accumulated  consumable. commo- 
dities, is  necessary  before  labor  can  be  employed.  The  agri- 
cultural laborer,  who,  without  any  capital,  migrates  westwardly 
to  a  new  settled  country,  is  immediately  employed,  and  receives 
competent  wages.  Yet  the  product  of  his  labor  does  not  be- 
come available  till  after  the  ensuing  crop :  he  must  in  the  mean- 
while be  fed  and  clothed  ;  and  this  would  be  impossible,  and  he 
would  have  no  means  of  existence,  had  not  the  farmer  who  em- 
ploys him  an  accumulated  capital  sufficient  for  that  purpose. 

Since  the  principal  advantage  of  a  paper  currency  consists  in 
the  additional  capital  it  supplies,  such  currency  is  most  useful, 
above  all  most  wanted,  but  unfortunately  a  more  dangerous 
expedient,  in  those  countries  and  places  where  there  is  the 
least  amount  of  circulating  capital  as  compared  to  the  demand 
for  it.  This  is  eminently  the  case  in  newly  settled  countries, 
with  a  rapidly  increasing  population.  We  find  accordingly  the 
local  governments  of  America  perpetually  resorting  to  emissions 
of  paper  money  under  the  colonial  regimen  ;  and  that,  at  this 
moment,  the  excess  of  issues  occurs  principally  in  the  Western 
States,  and  generally  wherever  country  banks  have  been  estab- 
lished. 

The  converse  of  the  proposition  would   seem  to  be  equally 


19 

true,  and  that,  in  countries  saturated  with  capital,  the  addition 
to  it  by  the  issue  of  bank  notes  does  not  compensate  for  the 
perpetual  fluctuations  and  alarms  growing  out  of  that  system. 
There  may  be  substantial  reasons,  why  Great  Britain  perseveres 
in  it :  they  have  not  been  fully  explained,  and  are  not  under- 
stood by  the  writer  of  this  essay.  But  wherever  a  paper  cur- 
rency has  been  introduced,  the  permanency  of  its  value  should 
be  the  indispensable  condition  of  its  existence. 

The  unanimous  assent  of  all  civilized  nations  has  made  goldf 
and  silver  their  universal  circulating  medium  and  standard  on 
value.      By  forbidding  any  other  legal  tender  in  payment  of\ 
debts,  the   constitution  of  the  United  States,  without  absolutely 
excluding    every  other  circulating    medium,  has    imperatively    / 
rendered  the  precious  metals  the  only  standard  of  value.     The  / 
substitution  of  a  paper  for  a  gold  or  silver  currency  is  therefore  / 
admissible,  only  on  the  express  condition,  that  it  shall  always  be 
equal  in  value  to  the  legal  coin  of  which  it  is  the  representative ; 
and  that  equality  cannot  be  maintained,  unless  the  paper  be  at 
all  times  convertible,  on  demand,  into  such  coin,  at  its  nominal 
value.     Any  deviation  from  that  principle  is  unjust  in  itself,  and 
an  evasion  of  the  constitutional  provision.     It  is  a  violation  of 
existing   contracts,   renders    all    subsequent    engagements    un- 
certain, destroys  confidence,  and   impairs   private  and    public 
credit. 

Banks  of  issue,  deposits  and  discounts  have  therefore  a  double 
duty  to  perform  ;  first,  to  be  at  all  times  ready  to  pay  their 
notes  and  deposits  in  specie,  so  as  to  preserve  the  constitutional 
standard  of  value ;  secondly,  to  give  accommodations  by  ad- 
vances to  the  productive  industry  of  the  country  ;  for  which 
purpose,  indeed,  they  were  instituted.  But  the  first  duty  is 
positive  and  absolute :  they  are  bound  in  the  first  instance  to 
fulfil  their  engagements :  it  is  the  express  condition  on  which 
the  banks  were  permitted  to  issue  paper :  they  have  no  right 
whatever  to  issue  a  depreciated  currency.  The  second  duty  is 
discretionary  and  subordinate  to  the  first :  it  can  be  exercised 
rightfully,  only  so  far  as  can  be  done  without  running  the  risk  of 
placing  themselves  in  a  situation  that  would  put  it  out  of  their 
power  to  fulfil  their  engagements. 

These  two  duties  are  therefore  to  some  extent  contradictory ; 


20 

and  the  question  has  been  agitated  in  England,  whether  they 
ought  not  and  might  not  be  separated.  This  will  not  be  now 
discussed,  as  it  is  believed  that,  at  least  for  the  present,  such 
separation  would,  as  a  general  measure,  be  impracticable  in  the 
United  States. 

The  present  situation  of  the  banking  system  has  proved,  but 
too  conclusively,  the  general  inclination  to  increase  immoderately 
the  banking  capital  and  the  number  of  banks ;  and  also  the  gene- 
ral tendency  of  all  the  banks  to  extend  their  loans  and  discounts 
beyond  what  prudence  and  their  primary  duty  would  dictate ; 
and  it  is  believed  that  this  defect  is  inherent  to  all  joint  stock 
banking  companies. 

Not  only  is  it  the  interest  of  the  shareholders,  so  long  as  they 
are  not  personally  responsible  beyond  the  amount  of  their  shares, 
to  obtain  as  large  a  dividend  as  possible,  but  the  evil  grows  out 
of  the  manner  in  which  joint  stock  companies  must  be  governed. 
The  direction  must  necessarily  be  placed  in  the  hands  of  a  few 
men,  who  have  comparatively  but  little  interest  in  the  bank. 
Most  of  them  are  selected  amongst  men  in  active  business,  in 
order  that  they  may  be  able  to  judge  of  the  solidity  of  the  pa- 
per offered  for  discount ;  and  as  they  are  not  paid,  it  is  impossi- 
ble to  expect  that  they  should  attend  without  deriving  some 
compensation  for  the  sacrifice  of  a  portion  of  their  precious 
time.  This  may  consist  in  part  from  the  discounts  they  obtain 
for  themselves,  which  may  always  be  kept  within  reasonable 
bounds.  But  the  power  and  consideration  attached  to  the  office 
can  be  obtained  only  by  granting  favors  ;  whilst,  on  the  contrary, 
a  refusal  renders  the  directors  unpopular.  To  this  may  be 
added  a  want  of  sufficient  moral  responsibility.  The  honorable 
merchant,  who  would  feel  disgraced  by  his  own  individual  fail- 
ure, is  not  affected  by  that  of  the  bank  of  which  he  may  be  a 
director.  It  is  well  known  that  this  general  observation  does 
not  apply  to  bank  directors  alone,  but  to  all  public  bodies.  Of 
all  the  causes,  however,  which  contribute  to  an  improper  extent 
of  discounts,  the  most  general  and  efficient,  the  most  prolific 
source  of  the  errors  of  bank  directors,  is  the  natural  sympathy 
which  they  feel  for  men  who  are  engaged  in  similar  pursuits  to 
their  own.  It  may,  upon  the  whole,  be  affirmed,  that  banks, 


21 

though  money  lenders,  are  in  fact  governed  rather  by  the  bor- 
rowers than  by  the  lenders. 

It  is  known  to  every  body,  that  the  liabilities  payable  on  de- 
mand, of  the  best  conducted  banks,  are  always  necessarily  much 
greater  than  their  immediately  available  resources.  In  order  to 
be  sustained,  not  only  must  they  enjoy  general  confidence,  but 
their  existence  depends  on  the  will  of  the  commercial  commu- 
nity. If,  in  a  time  of  extraordinary  pressure,  those  who  are 
deeply  embarrassed  should,  under  great  excitement,  either  from 
selfish  motives,  or  rather  from  error  in  judgment,  think  it  desira- 
ble to  shelter  themselves  under  a  genera]  relaxation,  they  may, 
if  sufficiently  numerous  and  influential,  force,  and  have  in  fact 
occasionally  lent  their  aid  in  forcing,  banks  to  suspend,  or  to 
persevere  in  suspending  specie  payments. 

Such  a  general  suspension  is  therefore  the  natural  general  dis- 
ease of  the  banking  system ;  it  is  that  to  be  most  guarded  against, 
as  it  is  also  in  its  consequences  the  most  fatal ;  much  more  so 
than  the  occasional  failures  of  some  individual  banks,  which, 
though  an  evil,  are  rare  (d),  local,  and  not  contagious. 

The  example  of  the  suspension  by  the  Bank  of  England,  which 
continued  more  than  twenty  years,  has  sometimes  been  adduced 
in  proof  that  such  an  event  was  a  very  tolerable  evil,  and  an 
expedient  to  which  resort  might  occasionally  be  had. 

What  were  the  inducements  of  the  British  Government  for 
resorting  to  that  expedient  in  the  year  1797,  after  having,  during 
the  next  preceding  one  hundred  years,  carried  on  several  wars 
without  having  found  such  measure  necessary,  and  what  actual 
advantages,  political,  financial,  or  commercial,  she  derived  from 
it,  it  is  not  necessary  or  perhaps  proper  to  discuss  in  this  place. 
But  it  cannot  be  doubted  that  that  act  dissolved  the  charm ; 
and  that,  since  the  resumption,  the  alarms  and  inconveniences 
connected  with  paper  issues  have  been  increased  and  aggrava- 
ted by  the  feeling  that,  as  the  bank  had  once,  so  it  might  again 
suspend  its  specie  payments.  The  effect  in  America  has  been, 
to  familiarize  the  idea  that  a  continued  suspension  might  become 


(d)  This  will  be  adverted  to  hereafter.     Not  one  of  the  city  banks  of  New  York 
has  failed  since  the  year  1829. 


22 

the  ordinary  state  of  things,  and  that  banks  might  fail  without 
becoming  bankrupts. 

But  the  situation  of  the  United  States  is  very  different  from  that 
of  Great  Britain,  when  a  general  suspension  of  the  banks  takes 
place.  Great  Britain  is  governed  by  one,  and  the  United  States 
by  twenty-six  independent  legislatures.  There  a  single  bank  con- 
trols the  whole  system  ;  here  it  is  left  at  the  mercy  of  an  indefi- 
nite number  of  banks,  independent  of  each  other.  Accordingly, 
the  issues  of  the  irredeemable  notes  of  the  Bank  of  England 
were  at  first  kept  within  reasonable  bounds,  and  the  depreciation 
for  several  years  was  almost  insensible.  It  increased  gradual- 
ly ;  and  during  the  years  1811-1815,  the  notes  of  the  Bank 
had  sunk  from  20  to  25  per  cent,  below  their  nominal  value. 
Even  under  more  favorable  circumstances,  the  evils  which 
follow  a  departure  from  sound  principles  could  not  ultimately 
be  averted. 

The  great  difference,  however,  between  the  effects  of  a  gene- 
ral suspension  in  the  two  countries  respectively,  is  the  uniformi- 
ty of  the  depreciation  in  England,  whilst  the  reverse  is  the  case 
in  America.  The  notes  of  the  Bank  of  England  were  alone  sub- 
stituted there  for  the  precious  metals,  as  a  legal  tender.  All  the 
other  banks  of  issue,  the  private  bankers  of  England,  and  the 
joint  stock  companies  of  Scotland,  were  still  obliged,  when  called 
upon,  to  redeem  their  own  issues  in  notes  of  the  Bank  of  Eng- 
land, or,  which  was  the  same  thing,  in  drafts  on  London.  What- 
ever the  depreciation  might  be, 'whatever  evils  might  be  caused 
by  its  fluctuation,  still  that  depreciation  was  at  the  same  time 
the  same  throughout  every  district  of  Great  Britain  and  of  Ire- 
land :' it  affected  in  a  direct  manner  all  foreign  exchanges  and 
transactions  :  it  had  no  immediate  and  direct  effect  on  domestic 
^exchanges. 

In  the  United  States  the  depreciation  is  different  at  the 
-same  time  in  the  different  States,  in  different  districts  of  the  same 
State,  and  occasionally  in  the  different  banks  of  the  same  district. 
The  effect  is  not  confined  to  foreign  exchanges ;  the  different 
and  fluctuating  depreciation  affect  domestic  exchanges,  and 
every  species  of  domestic  transactions.  Those  evils  have  in- 
creased with  the  protracted  continuance  of  the  suspension,  and 


23 

the  effect  on  the  moral  feeling  of  the  community  has  been  most 
lamentable. 

When  banks  suspend  specie  payments,  their  debtors  have  a 
right  to  discharge  the  debt  in  the  depreciated  paper  of  those 
institutions.  But,  because  the  banks  offer  to  pay  their  own  debts 
with  the  same  paper,  it  is  not  perceived  whence  the  right  ac- 
crues to  individuals  to  pursue  the  same  course  towards  each 
other.  They  have  not  the  legal  right,  since,  in  case  of  a  suit, 
the  debt  can  only  be  discharged  in  the  legal  coin  of  the  country  : 
nothing  but  gold  or  silver  is  by  the  constitution  a  legal  tender. 
Morally,  every  debtor  is  still  bound  to  pay  his  creditors,  the  sus- 
pended banks  only  excepted,  in  coin,  or  at  least  in  the  depre- 
ciated currency  at  its  market  price  in  gold  or  silver.  It  hap- 
pens, however,  that  the  great  mass  of  merchants,  who  reside  in 
the  same  place,  being  at  the  same  time  debtors  and  creditors, 
find  it  more  convenient  still  to  pay  each  other  by  the  transfer  of 
bank  deposits,  or  to  take  and  pay  the  bank  paper  at  its  nominal 
value.  This,  whilst  confined  to  those  who  have  a  common  in- 
terest in  pursuing  that  course,  may  not  be  improper,  and  is  con- 
venient. But  it  is  utterly  unjust  towards  those  who  are  credi- 
tors at  home  and  debtors  abroad,  towards  all  those  who  have 
only  debts  to  collect  and  none  to  pay,  or  who,  if  they  have  pay- 
ments to  make  as  consumers,  are  obliged  to  purchase  at  en- 
hanced prices.  The  loss  falls,  heavily  and  most  unjustly,  on  those 
who  live  on  wages,  which  do  not  advance  with  the  enhanced 
prices  of  articles  of  consumption,  but  which,  on  the  contrary, 
generally  fall  during  a  period  of  universal  derangement. 

The  injustice  is  still  greater  between  those  different  cities  and 
States  where  the  depreciation  is  not  the  same.  When  the  par- 
ties have  failed  or  are  unable  at  once  to  meet  their  engagements, 
amicable  arrangements  must  take  place  ;  and  the  creditors,  in 
such  cases,  are  satisfied  to  receive  what  the  debtor  can  pay. 
But  those  debtors,  residing  in  States  or  places  where  the  local 
currency  is  most  depreciated,  who  can  pay,  now  begin  to  think 
that,  because  they  pay  and  are  paid  at  home  with  that  currency, 
they  are  absolved  from  the  obligation  to  pay  in  any  other  way 
their  creditors  who  reside  in  other  places  or  States.  It  amounts 
to  this  ;  you  must  receive  this  depreciated  paper  at  par,  or  you 
may  institute  a  suit,  and  the  creditor,  who  knows  the  expenses 


24 

and  delays  of  the  law,  and  who  must  realize  his  active  debts  in 
order  to  meet  his  own  engagements,  is  compelled  to  submit.  In 
process  of  time,  the  people  generally  acquiesce  ;  the  banks  seem 
to  forget  altogether  in  what  consists  their  primary  duty,  and,  un- 
der pretence  of  alleviating  the  distress,  consult  only  their  own 
convenience.  The  same  feeling  at  last  penetrates  into  the  legis- 
lative halls  ;  and  the  State  legislatures,  which  at  first  had  ap- 
peared disposed  to  enforce  a  prompt  return  of  the  banks  to  their 
duty,  yield  and  authorize,  sometimes  even  encourage,  an  almost 
indefinite  continuance  of  the  suspension. 

It  would  be  painful  to  pursue  the  subject  any  farther,  and  to 
advert  to  the  recklessness,  gross  neglect,  inconceivable  misman- 
agement, amounting  to  a  breach  of  trust,  to  the  disgraceful  and 
heretofore  unheard-of  frauds,  which  have  occasionally  occurred, 
or  to  that  which  is  perhaps  still  worse,  the  apathy  or  lenity  with 
which  those  enormities  are  viewed. 

It  may  with  truth  be  affirmed,  that  the  present  situation  of  the 
currency  of  the  United  States  is  worse  than  that  of  any  other 
country.  The  value  even  of  the  irredeemable  paper  money  of 
Russia  has,  during  the  last  forty  years,  been  more  uniform ;  and 
in  its  fluctuations,  the  tendency  has  been  to  improve  and  not  to 
deteriorate  that  value.  No  hesitation  is  felt  in  saying  that, 
whatever  may  be  the  presumed  advantages  of  a  moderate  use 
of  a  paper  currency,  convertible  into  specie  on  demand,  to  have 
no  issue  of  paper  would  be  far  preferable  to  the  present  state 
of  things.  The  object  of  this  essay  is  to  inquire  whether  any 
practicable  remedies  can  be  applied  to  the  system. 


25 


CAUSES  AND  INCIDENTS  OF  THE 
BANK  SUSPENSIONS. 

ALL  active,  enterprising,  commercial  countries  are  necessarily 
subject  to  commercial  crises.  A  series  of  prosperous  years  al- 
most necessarily  produces  overtrading.  Those  revolutions  will 
be  more  frequent  and  greater  in  proportion  to  the  spirit  of  enter- 
prise, and  to  the  extension  or  abuse  of  credit.  But,  however 
prices  may  be  affected,  and  whatever  may  be  the  evils  growing 
out  of  the  crisis,  there  will  be  no  violation  of  contracts,  and  the 
standard  of  value  will  not  be  affected  in  countries  where  there 
is  no  paper  currency.  The  danger  of  a  suspension  of  specie 
payments,  which  immediately  deranges  that  standard,  is  neces- 
sarily increased  in  proportion  to  the  amount  of  issues  of  paper 
of  that  description  ;  and  that  amount  depends,  in  a  great  degree, 
on  the  denomination  of  the  bank  notes  permitted  to  be  issued  as 
currency,  on  the  number  of  the  banks  of  issue,  and,  in  the  United 
States,  on  the  capital  invested  in  bank  stock  (e). 

All  these  dangerous  elements  are  found  united  in  a  greater 
degree  in  the  United  States-  than  in  any  other  commercial 
country.  The  large  field  opened  for  enterprise,  the  free  insti- 
tutions of  the  country^  and  the  indomitable  energy  of  the  people, 
have  produced  results  astonishing  and  without  parallel  in  the 
history  of  other  nations.  A  wilderness  has  within  forty  years 
been  converted  into  the  abode  of  six  millions  of  civilized  and 
most  industrious  people.  Expensive  communications  have  been 
opened,  superior  in  extent  and  importance  to  those  of  continental 
Europe.  The  American  commerce  and  navigation  extend  to 
every  quarter  of  the  globe,  and  are  inferior  to  those  of  no  other 
country  but  England.  But  there  are  evils  which,  to  a  certain 
extent,  appear  to  be  the  necessary  consequence  of  a  state  of 
high  commercial  prosperity,  and  which  in  America  are  much 


(e)  The  capital  of  the  banks  is,  in  the  United  States,  universally  loaned  to  tra- 
ders :  generally  speaking,  the  European  banks  and  bankers  lend  only  the  amount 
of  their  circulation  and  deposits.  The  capitals  of  the  Bank  of  England  and  of  the 
Bank  of  France  are  vested  in  public  securities. 

A 


26 

increased  by  the  want  of  a  capital  proportionate  to  the  extent  of 
commercial  and  other  undertakings. 

Overtrading  has  been  the  primary  cause  of  the  present  crisis 
in  America.  Abundant  proofs  of  the  fact  are  found  in  the 
immoderate  use  of  foreign  credit,  as  well  as  in  the  excessive 
importations  and  sales  of  public  lands  in  the  years  1834-37. 

Of  imports — 

During  the  nine  years,  1822-1830,  the  average  annual  amount  was  $59,000,000 

three    "       1831-1833,  "              "              "  83,000,000 

four     ••       1834-1837,  "              "              "  130,000,000 

In        "       1836  alone,  "              "              "  168,000,000 

The  average  annual  excess  of  imports  over  the  exports 
amounted  to  four  millions  during  the  first  nine  years ;  to 
eighteen  millions  during  the  three  next  ensuing ;  to  thirty-four 
millions  during  the  four  last,  and  to  sixty-one  millions  in  the 
year  1836  alone. 

The  average  annual  sales  of  public  lands,  which,  during  the 
first  nine  years,  did  not  exceed  1,300,000  dollars,  and  which 
during  the  years  1831-35,  had  reached  4,500,000,  amounted  in 
1835  to  seventeen,  and  in  1836  to  twenty-five  millions.  Specu- 
lations in  unimproved  town  lots,  mines,  and  every  description  of 
rash  undertakings,  increased  at  the  same  rate. 

The  fault,  or  error,  originated  with  the  people  themselves. 
The  traders  and  speculators  have  attempted  to  ascribe  their  dis- 
asters altogether  to  legislative  acts  ;  to  those  of  the  Administra- 
tion or  to  other  collateral  causes,  which  have  indeed  aggravated 
the  evils,  but  the  effects  of  some  of  which  have  been  exagge- 
rated. Still,  although  it  would  be  improper  to  abridge  the 
freedom  of  action  which  all  individuals  should  be  permitted  to 
enjoy,  it  is  certain  that  the  spirit  of  enterprise  did  not  require 
any  artificial  stimulus. 

The  prodigious  increase  of  State  banks  was  the  result  of  State 
legislation.  From  the  1st  of  January  1830  to  the  1st  of  Janu- 
ary 1837,  three  hundred  new  banks  were  created,  with  a  capital 
of  one  hundred  and  forty-five  millions  of  dollars.  This  increase 
was  undoubtedly  due  to  the  eagerness  for  capital  applicable  to 
commercial  accommodations  or  other  purposes.  It  may  be  as- 
cribed in  part  to  the  expiration  of  the  charter  of  the  Bank  of  the 
United  States,  and  to  the  anticipation  of  that  event.  It  was 


27 

thought  necessary,  in  some  places,  to  fill  the  chasm  in  capital  and 
commercial  accommodations  that  must  follow  the  dissolution  of 
that  institution.  The  same  effect  had  been  produced  in  the 
years  1810-16,  on  the  occurrence  of  the  expiration  of  the  char- 
ter of  the  former  national  bank ;  and  in  both  cases  the  in- 
crease far  exceeded  the  apprehended  loss  and  the  wants  of  the 
country. 

The  great  increase  of  banks  took  place  accordingly  in  the 
Western  States,  where  capital  was  most  wanted.  During  the 
years  above  mentioned,  the  increase  in  the  banking  capital  of 
the  North- Western  States  amounted  to  near  twenty,  and  that  of 
the  South- Western  to  almost  fifty-five  millions  of  dollars  (f). 

But  that  increase  was  far  beyond  what  might  have  been 
wanted  for  useful  purposes.  Near  three-fifths  of  the  foreign 
merchandize  imported  into  the  United  States  are  imported  into 
New  York.  That  city  is  also  the  principal  place  of  deposit  for 
the  sale  of  the  domestic  manufactures  of  the  country ;  and  it  is 
also  the  centre  of  all  the  monied  transactions  of  the  United 
States.  In  the  year  1837,  the  capital  of  all  the  banks  of  that 
city  hardly  exceeded  twenty  millions  of  dollars ;  and  it  was  suf- 
ficient for  all  the  legitimate  operations  of  commerce.  When  an 
unexpected  increase  of  the  public  deposits  enabled  and  induced 
those  banks  to  expand  their  discounts  beyond  their  ordinary 
rate,  that  excess  excited  over-trading,  and  was  applied  to  extra- 
ordinary and  dangerous  speculations. 

In  order  to  obtain  or  to  assist  in  obtaining  the  capital  wanted 
for  the  new  banks,  for  internal  improvements,  and  for  some  other 
miscellaneous  purposes,  debts  were  incurred  by  several  States, 
amounting  from  1830  to  1838  to  near  one  hundred  and  fifty  mil- 
lions of  dollars.  The  debt  contracted  by  the  Atlantic  States 
was  almost  entirely  for  internal  improvements  ;  no  part  of  it  for 
banking  purposes,  and  it  fell  little  short  of  sixty  millions.  That 
contracted  by  the  North- Western  States  amounted  to  about 
thirty-eight  millions,  of  which  thirty-one  millions  five  hundred 


(/)  The  designations  of  the  Secretary  of  the  Treasury  of  the  United  States 
are  adopted  here,  as  convenient  for  reference.  According  to  these,  Ohio,  Indiana, 
Illinois,  Michigan,  Missouri,  and  Kentucky,  are  the  North- Western  ;  and  Tennes- 
see, Alabama,  Mississippi,  Louisiana,  and  Arkansas,  the  South- Western  States. 


28 

thousand  dollars  were  for  internal  improvements,  and  the  residue 
for  banking  capital.  That  incurred  by  the  South- Western 
States  was  about  fifty-two  millions,  of  which  more  than  forty- 
four  millions  were  for  banking  capital,  and  the  residue  for  internal 
improvements. 

The  population  of  the  United  States^  by  the  census  of  1840, 
exceeds  seventeen  millions,  of  whom  ten  millions  seven  hundred 
and  sixty  thousand  are  in  the  Atlantic,  four  millions  one  hundred 
and  thirty  thousand  in  the  North- Western,  and  two  millions  two 
hundred  and  thirty  thousand  in  the  South- Western  States. 

It  may  be  observed,  that  the  reason  why  so  much  more  capi- 
tal was  applied  in  the  South- Western  than  in  the  North-Western 
States  to  banking  purposes,  is  to  be  found  in  the  difference  of 
capital  wanted  for  the  employment  of  slave  and  free  labor  re- 
spectively. The  northern  farmer  advances  no  more  than  twelve 
months  wages  to  the  laborer  he  employs.  The  southern  plant- 
er, who  wishes  to  increase  the  product  of  his  land,  must  advance 
the  price  of  the  slave  himself,  which  amounts  perhaps  to  five  or 
six  times  the  net  product  of  his  annual  labor.  The  application 
of  banking  accommodation  to  purely  agricultural  purposes  has 
accordingly  been  much  greater,  and  has  been  attended  with  far 
more  fatal  effects,  in  the  South-Western  States,  than  in  any  other 
section  of  the  Union.  But  even  the  State  debts,  created  for  in- 
ternal improvements,  have  co-operated  in  aggravating  the  evils 
under  which  we  now  labor.  Not  only  were  their  proceeds  ap- 
plied to  purposes  of  which  the  returns  were  slow  and  uncertain, 
but  they  also  supplied  the  means  of  paying  balances  or  obtain- 
ing credits  abroad.  Thus,  extravagant  importations  were  en- 
couraged, whilst,  at  the  same  time,  some  of  those  stocks  became 
objects  of  speculation  at  home,  in  which  individuals  and  banks 
were  involved,  and  which  proved  injurious  to  all  the  parties  con- 
cerned ;  to  the  States,  as  well  as  to  the  purchasers.  Several  of 
the  States  neglected  to  provide  a  revenue  sufficient  to  pay  the 
annual  interest  accruing  on  their  debts.  Additional  loans  were 
resorted  to  for  that  purpose  ;  and  occasionally  forced  loans  were 
required  by  the  States  from  the  banks,  which  lessened  their  re- 
sources, and  had  a  tendency  to  produce  or  to  protract  the  sus- 
pension of  specie  payments. 

It  has  ever  been  the  opinion  of  the  writer  of  this  essay,  that  a 


29 

public  debt  was  always  an  evil,  to  be  avoided  whenever  practi- 
cable ;  hardly  ever  justifiable  except  in  time  of  war ;  to  be  resort- 
ed to  even  then  with  sobriety,  and  never  to  be  incurred  without 
providing  at  the  same  time  an  additional  revenue,  sufficient  to 
pay  the  interest  and  ultimately  to  discharge  the  principal  of  the 
debt.  A  long  life  of  experience  and  observation  has  produced 
an  intimate  conviction  of  the  soundness  of  those  principles.  In- 
dependently of  the  great,  manifest  and  permanent  evils  inflict- 
ed by  the  abuse  of  public  credit,  every  public  debt  absorbs 
a  capital  which  otherwise  would  have  been  applied  to  pur- 
poses as  least  as  productive  as  those  for  which  the  debt  was  in- 
curred. It  has  a  tendency,  perhaps,  more  than  any  other  cause, 
to  concentrate  the  national  wealth  in  the  hands  of  a  small  number 
of  individuals.  The  interest  must  at  all  times  be  paid  by  taxes 
extracted  from  the  proceeds  of  the  productive  labor  of  the  com- 
munity ;  and  it  feeds  the  drones  of  society. 

These  considerations  do  not  by  any  means  justify  the  sugges- 
tion, that  a  nation  is  not  bound  to  discharge  the  engagements  con- 
tracted, even  perhaps  improvidently,  by  its  Government.  A  son 
who  inherited  a  large  estate  might,  with  as  much  propriety, 
think  himself  under  no  obligation  to  discharge  the  liens  on  his 
inheritance.  In  the  United  States,  where  such  engagements 
have  always  been  contracted  by  the  immediate  representatives 
of  the  people,  and  those  representatives  elected  by  universal  suf- 
frage, there  is  not  even  the  color  of  a  pretence  for  the  supposi- 
tion, that  the  people  are  not  bound  by  the  acts  of  those  repre- 
sentatives. Any  such  suggestion  should  at  once  be  indig- 
nantly dismissed  as  dishonest  and  disgraceful.  The  errors  of 
legislation  may  be  regretted  ;  but  they  bind  the  nation. 

The  early  agitation  of  the  question  respecting  the  renewal  of 
the  charter  of  the  Bank  of  the  United  States,  the  veto  of  the  bill 
passed  by  the  two  Houses  of  Congress  for  that  purpose,  and  the 
removal  of  the  public  deposits  long  before  the  expiration  of  the 
charter,  are  the  principal  acts  of  the  executive  branch  of  the  Gen- 
eral Government  which  may  have  affected  the  state  of  the 
currency. 

Previous  to  any  of  these,  there  had  been  an  improper  interfe- 
rence, on  the  part  of  the  Treasury  Department,  in  the  choice  of 
some  of  those  officers  whose  appointment  did  by  the  charter  be- 


30 

long  exclusively  to  the  directors  of  the  mother  bank.  This,  in- 
stead of  strengthening,  had  a  tendency  to  weaken  the  natural 
and  legitimate  influence  of  that  department  over  the  general 
management  of  the  bank :  it  was  an  unfortunate  and  novel  intro- 
duction of  party  feelings  into  the  fiscal  concerns  of  the  nation. 

The  President  had  an  undoubted  right  to  put  his  veto  on  a  law 
which  renewed  the  charter  of  an  institution  which,  in  his  opin- 
ion, was  not  constitutional.  But  there  was  no  necessity  for  the 
early  attack  on  an  institution,  the  charter  of  which  did  not  expire 
till  two  years  after  the  end  of  the  term  for  which  the  President 
had  been  elected. 

The  currency  of  the  country  was  as  sound  in  the  year  1829,  as 
may  probably  be  expected  under  any  system  which  admits  the  sub- 
stitution of  paper  for  the  precious  metals.  It  seems  to  have  been 
unwise  to  interfere  with  this,  without  having  previously  weighed 
the  probable  consequences  and  without  having  prepared  a  proper 
substitute.  The  President  indeed  suggested  the  possibility,  not 
of  dispensing  altogether  with  a  national  bank,  but  of  establishing 
one  founded  on  different  principles.  It  appears,  however,  that  he 
entertained  only  general  views  on  the  subject,  and  had  not  adopt- 
ed any  determinate  plan  of  action.  In  point  of  fact,  no  such  plan 
or  substitute  was  ever  offered ;  and  the  final  result  was  to  leave 
the  currency  at  the  mercy  of  State  banks  and  State  legislation. 

The  immediate  consequences  were,  to  encourage  the  creation 
of  new  State  banks,  to  place  the  Government  and  the  Bank  of 
the  United  States  in  an  unnatural  hostile  attitude  to  each  other, 
to  change  the  character  of  that  institution,  which  could  not  pre- 
viously be  justly  charged  with  any  wilful  misconduct,  and  to 
convert  every  discussion  connected  with  the  subject  into  pure 
party  questions. 

The  early  removal  of  the  public  deposits  seems  to  have  been 
unnecessary ;  and  the  reasons  alleged  for  it  were  altogether  in- 
sufficient. On  a  similar  previous  occasion,  those  deposites  had 
been  removed  only  a  week  prior  to  the  expiration  of  the  charter 
of  the  former  Bank  of  the  United  States.  Not  the  slightest  in- 
convenience was  felt  on  that  account.  And  it  may  be  generally 
observed,  that  the  course  pursued  at  that  time  by  all  parties,  was 
such  that  the  bank  expired  quietly  without  agitating  the  public 
/nind.  The  subject  did  not,  as  of  late,  absorb  every  other  public 


31 

consideration,  and  become  the  great  political  or  party  question  of 
tne  country. 

The  specie  circular,  issued  at  a  subsequent  date,  and  which 
directed  the  payments  to  the  Treasury  for  public  lands,  and 
only  for  public  lands,  to  be  made  in  specie,  appears  to  the  writer 
of  this  essay  to  have  been  improper.  The  order  was  issued 
several  months  before  the  suspension  of  specie  payments  by  the 
banks.  Whether  the  President  thought  the  practice  of  paying 
in  notes  of  specie-paying  banks,  generally  acquiesced  in  for  a 
period  of  more  than  forty  years,  to  be  consistent  with  or  con- 
trary to  the  constitution,  the  rule  should  have  been  general.  It 
is  not  seen  on  what  principle  two  different  rules  were  estab- 
lished, and  a  distinction  made  between  payments  into  the 
Treasury,  on  account  of  duties  on  importations,  and  those  for 
purchases  of  public  lands  ;  between  those  who  claimed  lands, 
by  entries  according  to  law,  or  by  actual  settlement. 

The  only  effect  of  that  measure,  so  far  as  it  has  been  ascer- 
tained, was  to  cause  a  drain  of  specie  on  the  banks  of  New 
York,  at  a  time  when  it  was  important  that  that  point  should 
have  been  strengthened.  It  transferred  specie  from  the  place 
where  it  was  most  wanted  in  order  to  sustain  the  general  cur- 
rency of  the  country,  to  places  where  it  was  not  wanted  at  all. 
It  thus  accumulated  so  much  in  Michigan,  that,  whilst  it  was 
travelling  from  New  York  to  Detroit,  the  Secretary  of  the 
Treasury  was  obliged  to  draw  heavily  on  Michigan,  in  favor  of 
New  York  and  other  sea-ports.  Had  no  interference  taken 
place,  and  had  the  transactions  of  individuals  been  left  to  their 
natural  course,  it  is  clear  that  the  lands  would  have  been  paid 
for  in  Eastern  funds,  and  that  the  double  transmission  of  specie, 
where  it  took  place,  would  at  least  have  been  avoided. 

Independently  of  the  objections  to  which  premature  and  inter- 
mediate measures  may  be  liable,  the  charges  against  the 
President,  for  having  interfered  in  the  currency,  resolve  them- 
selves into  the  single  fact  of  having  prevented  the  renewal  of 
the  charter  of  the  Bank  of  the  United  States.  The  direct  and 
immediate  effects  cannot  be  correctly  ascertained ;  but  they 
have  been  greatly  exaggerated  by  party  spirit.  That  he  found 
the  currency  of  the  country  in  a  sound,  and  left  it  in  a  de- 
plorable state,  is  true  :  but  he  cannot  certainly  be  made  respon- 


32 

sible  for  the  aberrations  and  misdeeds  of  the  Bank  under  either 
of  its  charters.  The  unforeseen,  unexampled,  accumulation  of 
the  public  revenue  was  one  of  the  principal  proximate  causes  of 
the  disasters  that  ensued.  It  cannot  be  ascribed  either  to  the 
President  or  to  any  branch  of  Government ;  and  its  effects  might 
have  been  the  same,  whether  the  public  deposits  were  in  the 
State  banks,  or  had  been  left  in  the  national  bank,  organized 
and  governed  as  that  was. 

By  the  provisions  of  the  act,  respecting  the  tariff,  generally 
called  the  Compromise  Act,  the  reduction  of  the  duties,  to  the 
amount  deemed  sufficient,  after  the  final  payment  of  the  public 
debt,  to  meet  the  national  expenditures,  was  made  gradual 
and  could  at  first  operate  but  slowly.  But  in  order  to  prevent 
the  accumulation  of  monies  in  the  Treasury,  every  foreign  article 
which  did  not  compete  with  domestic  industry  was  made  duty 
free  ;  and  this  measure  seems  to  have  been  deemed  sufficient  by 
all  parties  to  effect  the  purpose.  This  proved  to  have  been  a 
mistake.  It  may  be  that  the  repeal  of  the  duties  on  certain  ar- 
ticles encouraged  too  large  importations  in  that  respect ;  but  all 
the  causes  which  excited  overtrading  were  in  full  operation. 
And  it  is  probable  that  the  danger  of  an  accumulated  revenue 
did  not  sufficiently  attract  the  attention  of  the  legislature. 

A  revenue,  consisting  exclusively  of  duties  on  importations 
and  of  the  proceeds  of  the  sales  of  public  lands,  must  necessarily 
be  subject  to  great  fluctuations  ;  and  such  had  been  experienced 
in  the  year  1817,  and  at  other  times.  But  they  were  not  felt, 
and  therefore  not  particularly  attended  to,  so  long  as,  in  addi- 
tion to  an  annual  fixed  appropriation,  all  the  surplus  revenues 
were  appropriated  and  applied  to  the  payment  of  the  principal 
of  the  public  debt.  That  payment  was  the  safety-valve  which 
prevented  any  dangerous  accumulation  of  monies  in  the  Treasu- 
ry. Whether  any  systematic  arrangement,  connected  with  such 
of  the  expenditures  for  the  defence  of  the  country,  as  may  be 
lessened  or  increased  according  to  circumstances,  might  not 
have  been  devised,  is  an  important  question  which  will  hereafter 
well  deserve  the  consideration  of  Government.  No  such  pro- 
spective measures,  however,  had  been  deemed  necessary ;  and 
more  than  forty  millions  of  accumulated  revenue  became  depo- 
sited in  the  State  banks,  thus  affording  a  new  extraordinary  fund 


33 

for  bank  accommodations  and  expansions.  These  were  unfor- 
tunately encouraged  by  the  Treasury  Department,  which  seems, 
on  this  occasion,  to  have  yielded  to  the  general  clamor  of  those 
who  represented  the  withdrawal  of  the  capital  and  loans  of  the 
Bank  of  the  United  States  as  threatening  ruin  to  commerce. 
Apprehensive  that  the  deposite  banks  of  the  city  of  New  York 
could  not,  on  account  of  the  limitations  in  their  charters,  suffici- 
ently extend  their  discounts,  the  Secretary  of  the  Treasury  had, 
before  the  Act  of  June  1836,  directed  those  institutions  to  lend 
a  part  of  the  public  deposits  to  the  other  city  banks* 

This  course  was  sanctioned  by  that  act,  which  directed  that 
the  public  deposits  in  any  bank  should  not  exceed  three-fourths 
of  its  capital ;  and  the  law,  by  directing  that  the  banks  should 
pay  interest  whenever  those  deposits  exceeded  a  certain  sum, 
rendered  their  partial  application  to  discounts  actually  necessary. 

But  Congress,  justly  alarmed  at  that  great  increase  of  the 
public  moneys  in  the  Treasury,  thought  proper  to  distribute  it 
among  the  several  States.  The  propriety  of  this  measure,  and 
its  consistency  with  the  spirit  of  the  constitution,  may  be  ques- 
tioned. Subsequent  events  have  shown  that  the  amount  intend- 
ed to  be  withdrawn  from  the  Treasury  was  too  large,  and  that, 
as  might  have  been  anticipated,  the  revenue  of  the  next  ensuing 
years  fell  short  of  the  current  expenditures.  But,  viewed  in 
reference  only  to  the  banking  system  and  to  the  paper  currency 
of  the  country,  the  process,  though  protracted  and  spread  over 
fifteen  months,  was  much  too  prompt.  The  Legislature  was 
not,  and  could  not  indeed  be  aware,  how  slow  and  gradual  the 
diminution  of  discounts  must  be,  in  order  that  universal  distress 
may  not  ensue. 

The  public  deposits  in  the  city  banks  of  New  York  amounted 
to  fourteen  millions  of  dollars.  At  the  same  time  that  they  were 
ordered  to  be  withdrawn,  the  state  of  the  money  market  in  Eng* 
land  arrested  the  progressive  and  exaggerated  credits  heretofore 
granted  to  the  American  merchants,  and  on  the  continuance  of 
which  they  had  relied.  The  consequent  necessity  of  making 
large  remittances  to  England,  whilst  those  expected  from  the 
South- West  began  to  fail,  and  the  simultaneous  withdrawal  of 
the  public  deposits,  may  be  considered  as  the  principal  proximate 
causes  of  the  suspension  of  specie  payments  in  1837.  In  the  city 


34 

of  New  York  the  great  destruction  of  capital  by  the  fire  of  De- 
cember 1835,  frauds  committed  on  one  of  the  principal  banks, 
and  some  other  local  incidents,  co-operated  in  producing  that 
result.  The  Bank  of  the  United  States  had  but  little  share 
in  it. 

It  would  be  idle  to  inquire  whether,  if  the  charter  of  that  in- 
stitution had  been  renewed,  and  if  it  had  been  the  sole  place  of 
deposit  of  the  forty  millions  of  public  moneys,  the  suspension 
might  have  been  prevented.  That  would  have  depended  en- 
tirely on  the  manner  in  which  the  bank  might  have  been 
administered. 

That  institution  had  ceased  to  be  a  regulator  of  the  currency 
as  early  as  the  years  1832-33,  when  its  discounts  and  other  in? 
vestments  were  increased  from  fifty-five  to  sixty-five  millions, 
that  is  to  say,  at  the  rate  of  85  per  cent,  beyond  its  capital ; 
whilst  those  of  the  sound  banks  of  our  great  commercial  cities 
did  not  exceed  the  rate  of  60  per  cent,  beyond  their  capital.  It 
is  not  necessary  to  inquire  whether  this  expansion  was  the  natu- 
ral consequence  of  the  course  of  trade,  whether  the  Bank  of  the 
United  States  was  in  any  degree  influenced  by  considerations 
connected  with  its  own  existence,  or  whether  the  machinery 
carried  away  the  directors  instead  of  being  governed  by  them. 
It  is  obvious,  that  it  is  only  by  keeping  its  discounts  at  a  lower 
rate  than  those  of  the  State  banks,  that  these  can  be  its  debtors ; 
and  that  it  is  only  by  enforcing  the  payment  of  the  balances,  that 
it  can  keep  them  within  bounds,  and  thus  regulate  the  currency. 
A  contrary  course  will  induce  the  State  banks  to  enlarge  their 
own  discounts,  and  will  engender  excessive  issues,  followed  by 
necessary  contractions  and  unavoidable  distress. 

But  a  great  change  had  taken  place  in  the  situation  of  that  bank. 
On  its  dissolution  in  March  1836,  it  accepted  a  new  charter  on 
onerous  conditions  from  the  State  of  Pennsylvania,  and,  contrary 
to  what  had  been  anticipated,  the  greater  part  of  its  circulation  was 
almost  immediately  returned  to  it  for  redemption.  It  now  ap- 
pears, by  a  statement  of  its  affairs  dated  1st  Feb.  1836,  and  laid 
at  the  time  before  the  stockholders,  that  its  actual  circulation 
amounted  on  that  day  to  $24,360,000,  and  its  deposits  to 
$4,400,000.  On  the  1st  Jan.  1837,  the  actual  circulation  was  re- 
duced to  $11,450,000,  and  the  deposits  to  $2,330,000.  Those 


35 

funds  on  which,  in  addition  to  its  capital,  the  bank  must  rely  for 
making  or  continuing  its  discounts,  were  in  ten  months  reduced 
from  near  twenty-nine  to  about  fourteen  millions,  or  more  than 
one  half.  It  was  impossible  to  have,  within  that  short  period, 
reduced  the  discounts  to  the  same  extent.  Accordingly  the 
bank  had  already  incurred  other  liabilities  not  payable  on  de- 
mand, amounting  to  near  seven  millions  of  dollars ;  its  specie 
had  been  lessened  from  $7,650,000  to  $2,640,000 ;  and  it  was  as 
powerless  and  as  unable  to  prevent  the  suspension  as  the  other 
State  banks.  Its  situation  was  not  known  to  the  banks  of  New 
York,  when  application  for  relief  was,  at  the  moment  of  the  cri- 
sis, made  by  that  city  to  that  institution.  The  manner,  how- 
ever, in  which  the  relief  was  granted  did  not  weaken  it. 

It  must  be  acknowledged  that,  great  as  was  the  distress  during 
that  winter,  and  notwithstanding  all  the  ominous  circumstances 
of  the  times,  the  danger  of  a  general  suspension  was  not  antici- 
pated by  the  banks  or  the  merchants  of  New  York,  nor  indeed, 
it  seems,  any  where  else,  before  the  month  of  March  1837. 
From  that  time,  the  city  banks  made  the  most  strenuous  efforts 
to  avert  the  event,  and  so  successfully  as  to  arrest  the  drain  of 
specie,  the  amount  of  which  in  their  vaults  was  not  lessened  be- 
tween the  first  and  the  last  day  of  April.  The  Comptroller  of 
the  State  and  the  other  Commissioners  of  the  Canal  Fund,  on 
being  applied  to  and  made  acquainted  with  the  imminent  im- 
pending danger,  had  also  agreed  to  lend  to  the  banks  three  mil- 
lions five  hundred  thousand  dollars  of  State  Stocks,  which  they 
were  authorised  to  issue,  but  the  proceeds  of  which  were  wanted 
only  gradually  within  the  two  or  three  ensuing  years.  The  loan 
was  on  the  express  condition,  that  the  Stocks  of  the  State,  which 
were  then  above  par  in  England,  should  be  used  as  remittances, 
and  to  that  extent  lessen  the  intense  demand  for  specie  for  the 
same  purpose.  The  necessity  of  a  law,  authorising  the  banks  to 
purchase  the  Stock,  caused  an  unavoidable  delay,  which  pre- 
vented the  execution  of  the  agreement :  for,  on  the  very  day  on 
which  the  law  was  passed,  the  drain  on  the  banks,  which  had  gra- 
dually increased,  became  so  intense,  that  they  concluded  the 
same  night  to  suspend  their  specie  payments.  It  cannot  be  af- 
firmed that  this  drain  was  any  thing  more  than  the  result  of  a 
general  panic.  Yet  there  were  symptoms  of  combination  in 


36 

the  manner  in  which  it  was  conducted.  Such  were  the  situa- 
tion and  feelings  of  the  banks  throughout  the  whole  country,  that 
they  all,  without  any  exception,  and  almost  without  deliberation, 
instantaneously  suspended,  as  fast  as  the  mail  could  convey  the 
intelligence  of  the  suspension  in  New  York. 

The  Legislature  of  New  York  was  on  the  eve  of  adjourning 
when  the  suspension  took  place.  Under  the  excitement  of  the 
moment,  and  without  sufficient  deliberation,  a  law  was  passed, 
commonly  called  the  Suspension  Act,  altogether  unnecessary,  and 
in  some  respects  mischievous. 

By  the  general  laws  of  the  State,  or  by  the  charters  of  the 
several  banks,  it  was  already  enacted,  1st,  that  whenever  a  bank 
suspended  specie  payment  during  ten  days  (g),  it  should  thence- 
forth cease  its  operations,  save  only  the  collection  and  payment 
of  its  debts,  unless,  on  application  to  the  Chancellor  or  Circuit 
Judge,  and  an  examination  of  its  affairs,  it  was  permitted  by  that 
officer  to  continue  its  operations;  2dly,  that  if,  at  the  expiration 
of  one  year,  the  bank  did  not  resume  its  payments,  it  should  be 
deemed  to  have  surrendered  its  rights,  and  be  adjudged  to  be 
dissolved. 

The  Suspension  Act  released,  for  the  term  of  one  year,  the 
banks  from  any  forfeiture  of  their  charters  incurred  on  account 
of  a  suspension  of  specie  payment.  It  left  the  general  law  to 
operate  at  the  expiration  of  the  year  as  before  provided.  Its 
only  effect,  in  that  respect,  was  to  release  the  banks  from  the  ob- 
ligation of  submitting  the  statement  of  their  affairs  to  the  Chan- 
cellor, and  to  allow  them  to  continue  their  operations  without  his 
permission  ;  reserving,  however,  the  power  already  vested  in  the 
Bank  Commissioners,  to  apply  for  an  injunction  in  any  special 
case,  when  the  situation  of  the  bank  appeared  to  require  it. 
This  alteration  was  quite  unnecessary.  It  would  have  been  far 
more  eligible  to  allow  the  general  law  to  operate ;  and  this 
special  provision  conferred  no  real  benefit  on  the  banks  (h). 


(§•)  The  term  for  the  old  banks,  whose  charters  were  renewed  about  the  year 
1831,  was  three  months. 

(A)  One  bank  alone,  wishing  to  rest  on  the  general,  without  any  aid  from  a  spe- 
cial law,  applied  tp  the  Vice-Chancellor,  and  continued  its  operations  by  virtue  of 


37 

The  only  other  enactment  of  the  law,  intended  to  favor  the 
banks,  was  that  which  placed  them  on  the  same  footing  as  indi- 
viduals, by  allowing  no  costs  in  suits  under  fifty  dollars.  But 
nothing  was  more  easy  than  to  institute  suits  on  ten  five-dollar 
notes  together,  and  the  result  was  the  same  as  if  the  enactment 
had  not  taken  place.  The  city  banks  were  compelled  silently 
to  withdraw  their  five-dollar  notes  from  circulation:  and  the 
only  effect  was  a  substitution  in  the  city  circulation  of  notes 
worse  than  theirs. 

In  another  respect  the  special  law  was  injurious  to  the  city 
banks,  by  compelling  them  to  take  in  payment  of  their  debts, 
the  notes  of  the  country  banks. 

But  the  moral  effect  of  the  law  was  bad.  Though  it  had  in 
reality  made  no  alteration  in  the  existing  law,  it  had  the  appear- 
ance and  was  generally  considered  as  sanctioning  the  sus- 
pension :  and  the  act  was  quoted  in  other  States,  and  used  as  a 
pretence  for  passing  suspension  laws  of  a  very  different  cha- 
racter. 

As  soon,  however,  as  the  first  shock  was  over,  the  banks  of 
the  city  of  New  York  adopted  a  course  of  action  preparatory 
to  an  early  resumption :  and  in  the  month  of  August,  they 
addressed  a  circular  letter  to  the  principal  banks  of  the  other 
States,  requesting  their  co-operation,  and  proposing  a  convention 
of  delegates  from  the  banks  of  the  several  States,  for  the  pur- 
pose of  agreeing  on  a  uniform  course  of  measures  and  on  the 
time  when  the  resumption  should  take  place.  The  South- 
Western  States  were  not  ready  for  any  immediate  action. 
Encouraging  answers  were  received  from  the  other  Western 
and  from  the  Southern  banks,  as  well  as  from  some  other  quar- 
ters. The  Boston  banks  would  not  commit  themselves,  but  at 
the  last  moment  appointed  delegates.  The  banks  of  Philadelphia 
adopted  a  resolution,  that  it  was  inexpedient  at  that  time  to 
appoint  delegates ;  and  the  banks  of  Baltimore  followed  the  same 
example. 


his  order  to  that  effect.  But  the  proof,  that  the  banks  did  not  want  the  act,  is 
found  in  the  fact  that  the  Manhattan  Company,  which  did  not  comply  with  any 
of  its  provisions,  continued  its  operations,  and  passed  through  the  ordeal  with  thei 
same  facility  as  the  other  banks. 


38 

The  principal  reason  alleged  by  the  Philadelphia  banks  for 
their  refusal  was  ominous.  They  declared  their  belief  that  the 
general  resumption  of  specie  payments  depended  mainly,  if  not 
exclusively,  on  the  action  of  Congress,  without  whose  co- 
operation all  attempts  at  a  general  system  of  payments  in  coin 
throughout  this  extensive  country  must  be  partial  and  tem- 
porary. 

What  was  the  action  and  co-operation  of  Congress  which 
was  then  alluded  to  ?  The  only  subject  of  complaint  at  that 
time  against  Congress,  in  reference  to  the  currency,  was  its 
refusal  to  renew  the  charter  of  the  Bank  of  the  United  States. 
No  other  action  on  its  part  had  been  asked  than  a  renewal  of 
that  charter,  or  the  creation  of  a  new  bank.  The  employment 
of  the  old  bank  under  its  new  charter,  as  the  fiscal  agent  of 
Government,  was  perhaps  contemplated.  Whatever  the  object 
might  be,  any  attempt,  or  appearance  of  an  attempt,  to  coerce 
Congress  by  a  wilful  coaikruance  of  the  suspension,  was  highly 
improper.  The  banks  of  New  York  insisted  that,  whatever 
might  be  the  action  of  Congress  on  the  currency,  the  duty  of 
resuming  remained  the  same,  and  must  be  performed  by  the 
banks.  The  Philadelphia  banks  ultimately  appointed  delegates 
to  the  convention,  which  met  at  New  York  on  the  27th  Novem- 
ber 1837. 

At  that  meeting,  though  allusion  was  still  made  to  some 
expected  action  of  Congress,  it  was  principally  urged,  not  that 
the  banks  were  unprepared  for  resuming,  but  that  the  state  of 
the  country  generally  rendered  a  resumption  inexpedient  for 
the  present,  that  the  time  had  not  yet  come  when  a  day  for  that 
purpose  could  be  designated  ;  and  that  the  continuance  of  a  hasty 
resumption  would  be  precarious. 

The  banks  of  New  York  insisted,  that  it  was  monstrous  to 
.suppose  that,  if  the  banks  were  able  to  resume  and  to  sustain 
.specie  payments,  they  should  have  any  discretionary  right  to 
discuss  the  question,  whether  a  more  or  less  protracted  sus- 
pension was  consistent  with  their  views  of  the  condition  and 
.circumstances  of  the  country.  Numerous  facts  were  adduced 
Jo  prove  the  ability  of  the  banks  to  resume,  that  the  British  debt 
was  settled  or  postponed,  that  the  danger  of  an  extraordinary 
^exportation  of  specie  was  now  out  of  question,  and  that  no  other 


39 

known  causes  existed,  which  could  prevent  a  general,  though 
not  universal,  resumption  of  specie  payments  within  a  very  short 
period. 

In  allusion  to  the  action  of  Congress,  and  in  reply  to  the 
complaint,  that  the  banks  of  New  York  had  improperly  persisted 
in  calling  the  convention  contrary  to  the  opinion  of  those  of 
Philadelphia,  it  was  answered  with  frankness,  that  the  objections 
of  the  Philadelphia  banks,  or,  to  speak  more  correctly,  of  the 
United  States  Bank  of  Pennsylvania,  were  viewed  as  nothing 
more  nor  less  than  as  an  intended  protracted  suspension  for  an 
indefinite  period  of  time.  In  corroboration,  the  extraordinary 
conduct  of  that  bank  was  alleged,  in  having  put  in  circulation, 
since  the  suspension,  a  large  amount  of  the  notes  of  the  late 
Bank  of  the  United  States,  thus  substituting  the  paper  currency 
of  a  dead  and  irresponsible  body  for  its  own. 

Although  the  convention  was  nearly  divided,  nothing  more 
could  be  obtained  than  general  professions,  and  a  resolution  to 
meet  again  in  April,  for  the  purpose  of  considering,  and,  if 
practicable,  determining  upon  the  day  when  specie  payments 
might  be  resumed. 

The  conflict  was  clearly  between  the  United  States  Bank  of 
Pennsylvania  and  those  of  New  York.  The  other  banks  of 
Philadelphia,  though  divided  in  opinion  and  sound,  had  yielded, 
and  Baltimore  had  thought  proper  to  follow  the  same  course. 
On  the  other  hand,  the  disposition  of  the  North- Western  and 
Southern  States  was  generally  favorable  to  an  early  resumption, 
though  they  seem  to  have  apprehended  that  they  might  not  be 
able  to  sustain  specie  payments,  if  Philadelphia  and  Baltimore 
persisted  in  suspending.  No  such  apprehension  was  felt  in  the 
Eastern  States.  Yet  the  banks  of  Boston,  though  earnestly 
desirous  that  the  resumption  might  be  effected  without  delay, 
and  ready  to  co-operate,  did,  in  the  two  conventions,  and  to  the 
last  moment,  sustain  by  their  votes  and  influence  the  views  of 
the  United  States  Bank.  Such  were  the  baneful  effects  of  party 
applied ,  to  the  fiscal  concerns  of  the  nation,  and  such  the  con- 
sequence of  that  institution  having  become,  or  been  generally 
viewed  as,  the  great  antagonist  of  the  Administration  and  the 
rallying  point  of  its  opponents. 

The  banks  of  New  York,  determined  in  their  course,  had 


40 

persevered  in  measures  which  would  have  enabled  them  to  re- 
sume nearly  two  months  earlier  than  they  did.  The  exchanges 
had  become  decidedly  favorable  :  and  the  agreement  with  the 
Comptroller  for  a  loan  of  the  residue  of  the  State  Stocks,  which 
was  renewed  and  concluded  in  November  1837,  enabled  them, 
according  to  the  express  terms  of  the  contract,  to  replenish 
without  difficulty  their  vaults  with  specie.  Aware,  however,  of 
the  importance  of  a  co-operation  on  the  part  of  the  other  banks, 
they  had,  in  the  first  convention,  in  vain  asked  that  an  earlier 
day  should  be  appointed  for  the  adjourned  meeting,  and  then 
waited  for  its  result.  It  was  soon  ascertained*  when  that  assem- 
bly met,  that  a  simultaneous  resumption  could  not  be  obtained  : 
and  it  was  then  only  requested,  that  the  convention  should  re- 
commend an  early  day  for  that  purpose.  Fair  as  was  the  pro- 
spect at  first,  the  vote  to  recommend  so  late  a  day  as  the  1st  of 
January  1839,  was  carried  ;  and  the  banks  of  New  York  were 
left  to  resume  alone  and  without  any  assurance  of  an  earlier  co- 
operation. 

But  the  circumstances  of  the  times  were  eminently  propitious. 
Not  only  had  the  foreign  debt  been  settled  or  postponed,  and  all 
the  exchanges,  whether  domestic  or  foreign,  become  decidedly 
favorable,  but  one  million  sterling  in  specie  had  been  imported, 
under  the  auspices  of  the  Bank  of  England,  through  the  agency 
of  a  commercial  house.  The  city  banks  resumed  with  more 
than  seven  millions  of  dollars  in  specie  ;  their  gross  circulation 
reduced  to  three  millions,  and  their  other  liabilities  payable  on 
demand  considerably  diminished.  The  public  deposits  of  the 
United  States,  which  on  the  1st  of  January  1837  exceeded  ten 
millions  of  dollars,  had  all  been  paid.  Their  loans  and  discounts, 
amounting  on  the  1st  of  January  1837  to  forty-six  millions,  had 
been  reduced  to  thirty-two.  They  had  been  admirably  seconded 
by  the  country  banks  of  the  State,  whose  specie  and  city  funds 
had  been  increased,  and  the  circulation  and  discounts  reduced 
in  the  same  proportion.  Much  credit  is  due  to  the  Bank  Com- 
missioners for  their  efforts  in  promoting  that  result. 

Above  all,  the  sound  and  most  powerful  portion  of  the  com- 
merce of  New  York  had  now  taken  an  active  part  in  promoting 
an  immediate  resumption.  The  Debtor  Interest,  which,  com- 
bined with  that  of  the  United  States  Bank  of  Pennsylvania,  and 


41 

with  the  mistaken  views  of  some  and  the  unfounded  apprehen- 
sions of  others,  had  constantly  attempted  to  impede  the  course 
pursued  by  the  banks,  was  silenced.  They  resumed,  sustained 
by  that  general  support  of  the  commercial  community  and  by 
that  general  confidence  which  are  indispensable  for  the  main- 
tenance of  specie  payments.  They  resumed  in  good  faith  and  in 
full,  redeeming  the  country  paper  which,  during  the  suspension, 
had  become  the  general  currency  of  the  city ;  freely  substituting 
their  own  circulation,  and  paying  without  distinction,  when  re- 
quired, all  their  liabilities.  The  resumption  was  effected  without 
the  slightest  difficulty  ;  and  it  is  but  just  to  add,  that  no  attempt 
was  made  to  impede  it,  either  by  the  United  States  Bank  of 
Pennsylvania,  or  from  any  other  quarter. 

The  banks  of  Boston,  and  generally  of  New  England,  were 
the  first  to  adopt  the  same  course.  Public  opinion;  operating 
first  on  the  Governor  of  Pennsylvania,  compelled  the  United 
States  Bank  to  resume  in  the  month  of  July ;  and  the  example 
was  soon  followed  South  and  West  throughout  almost  all  the 
States.  That  happy  state  of  things  was  of  short  duration.  In 
October  1839,  the  United  States  Bank  again  suspended  its  pay- 
ments ;  and  again  the  South  and  the  West  adopted,  or  were 
obliged  to  pursue,  the  same  course.  After  a  short  and  vain  at- 
tempt on  the  part  of  that  institution  to  resume  in  January  last, 
we  are  again  reduced  to  the  same  situation.  Boston  and  the 
Eastern  States,  New  York  and  the  adjacent  part  of  New  Jersey, 
and  of  late  Charleston,  sustain  specie  payments.  Every  where 
else,  with  perhaps  some  insulated  exceptions,  there  is  no  other  cur- 
rency but  irredeemable  paper,  more  or  less  depreciated  ;  and 
the  suspension  is  almost  everywhere  sanctioned  by  the  State 
legislation. 

The  facility  with  which  specie  payments  had  been  resumed 
had  produced,  in  some  quarters,  the  erroneous  belief,  that  the 
country  had  entirely  recovered  from  the  injuries  inflicted  by 
years  of  overtrading  and  inflated  prices.  Commercial  business 
was  revived  too  early,  and  bank  facilities  were  too  easily 
granted.  The  foreign  importations  of  the  year  1839  again 
amounted  to  one  hundred  and  sixty-two  millions,  the  exports  to 
one  hundred  and  twenty-one,  and  the  excess  to  forty  millions. 
But  the  suspension  of  October  1839,  and  its  consequences  to 
6 


42 

this  day,  must  be  ascribed  almost  exclusively  to  the  United 
States  Bank. 

It  has  already  been  seen  that,  before  the  1st  of  January  1837, 
and  within  the  first  ten  months  of  its  new  position  as  a  State 
bank,  its  legitimate  means  of  discounting,  other  than  its  capital, 
that  is  to  say,  its  circulation  and  deposits,  had  been  reduced 
from  twenty-nine  to  fourteen  millions.  Deducting  the  necessary 
amount  of  specie,  its  available  means  applicable  to  discounts 
or"  other  investments,  did  not,  including  its  capital,  exceed  forty- 
seven  millions.  Indeed,  the  onerous  conditions  imposed  by  the 
State  charter  and  the  purchase,  at  an  advance  of  fifteen  per 
cent.,  of  the  seven  millions  held  by  the  United  States  in  the 
stock  of  the  old  bank,  made  the  truly  available  means  consid- 
erably less.  In  that  situation,  its  loans  and  profits,  under  a  wise 
and  cautious  administration,  should  have  been  reduced  to  the 
amount  corresponding  with  the  actual  means. 

Instead  of  pursuing  that  course,  a  bold  attempt  was  made,  as 
soon  as  the  suspension  of  May  1837  had  taken  place,  to  take  ad- 
vantage of  that  state  of  things  for  commencing  a  system  of  ope- 
ration, foreign  to  the  ordinary  and  legitimate  transactions  of  any 
bank,  and  which  might  eventually,  according  to  the  sanguine 
expectations  of  the  projectors,  control  the  whole  commerce  of 
the  country,  reinstate  the  circulation  of  the  Bank,  and  restore  its 
pristine  preponderance.  It  is  obvious  that  this  could  not  be 
carried  into  effect,  even  if  the  result  had  been  as  propitious  as  it 
has  proved  to  be  fatal,  without  prolonging  the  general  suspen- 
sion of  specie  payments.  It  became  the  interest  of  the  Bank 
that  this  should  be  the  case  ;  and  here  may  probably  be  found 
the  principal  cause,  not  at  the  time  suspected,  of  the  course  pur- 
sued in  that  respect  by  that  institution. 

As  early  as  the  month  of  June  1837,  a  considerable  portion 
of  the  available  funds  of  the  Bank  was  diverted  from  their  legi- 
timate object,  and,  instead  of  being  applied  to  the  gradual  reduc- 
tion of  its  liabilities,  was  loaned  to  the  president  and  other  offi- 
cers or  directors  of  the  Bank,  in  order  to  be  employed  in 
advances  on  cotton  shipped  to  Europe.  A  special  agency,  in 
reference  to  that  object,  was  established  in  London  in  the  ensu- 
ing month  of  November.  The  advances  were  greatly  increased, 
and  continued  during  a  period  of  near  two  years.  Although  no 


43 

loss  may  have  been  incurred  by  the  Bank,  the  gross  impropriety 
of  loans  to  such  an  amount  to  officers  of  the  Bank,  is  not  the  less 
evident.  The  sequel  is  well  known.  Other  improvident  loans 
were  made.  The  Bank  over-loaded  itself,  by  purchase,  or 
otherwise,  with  stocks  of  every  possible  description.  It  has  been 
alleged  that  it  was  not  the  fault  of  the  administrators  of  the 
Bank,  if  those  stocks  subsequently  fell  in  value.  The  fault 
consisted  in  having  converted  the  Bank  into  a  stock-jobbing  as- 
sociation. In  the  meanwhile,  as  other  means  were  wanted,  an 
enormous  debt  was  contracted  abroad. 

On  the  1st  of  April  1839,  the  foreign  debt  of  the  Bank  amount- 
ed to  twelve  millions  eight  hundred  thousand  dollars,  and  the 
various  stocks  owned  by  it  to  near  twenty-three  millions  (i). 
Its  credit  had  indeed  been  artificially  sustained ;  and  its  stock 
was  selling  at  a  considerable  advance.  It  was  nevertheless  on 
the  verge  of  destruction.  In  August  of  the  same  year,  it  was 
compelled  to  issue  post  notes,  which  soon  fell  to  a  discount  of 
more  than  one  per  cent,  a  month.  In  September,  the  Bank 
drew  largely  on  Europe  without  funds,  and  partly  without  ad- 
vice. In  order,  if  possible,  to  provide  funds  for  that  object,  and 
also,  as  has  been  acknowledged,  for  the  purpose  of  breaking  the 
banks  of  New  York,  payment  of  the  bills  thus  sold  in  that  city 
was  suddenly  required  in  specie,  and  the  amount  shipped  to 
Europe.  The  attempt  was  a  failure  in  both  respects ;  the  banks 
stood,  and  the  bills  were  dishonored.  On  the  9th  of  October, 
the  United  States  Bank  suspended  its  payments  ;  and  it  is  not 
improper  to  observe  that,  a  fortnight  later,  another  attempt  was 
made,  under  its  auspices,  by  the  debtor  interest  of  New  York, 
to  compel  the  banks  to  expand  their  discounts  and  thus  prepare 
the  way  for  another  general  suspension.  The  banks,  as  might 
well  be  expected,  unanimously  refused  to  yield. 

From  that  time,  the  fate  of  that  institution  was  considered  as 
sealed  by  every  impartial  observer.  Nevertheless,  the  other 
banks  of  Philadelphia  still  persevered  in  sustaining  it,  and 
suffered  it  to  become  largely  indebted  to  them.  The  State 
protracted  its  existence,  and,  as  an  equivalent,  exacted  new 


(i)  $6,300,000   of  which,  consisting  principally  of  Mississippi  and  Michigan 
stocks,  and  previously  contracted  for,  were  not  yet  entered  on  the  ledger. 


44 

loans  from  it.  In  the  meanwhile,  it  could  no  otherwise  meet  its 
liabilities  abroad  than  by  new  loans,  obtained  on  onerous  con- 
ditions ;  and  in  order  to  sustain  its  expiring  credit,  a  resumption 
was  at  last  deemed  absolutely  necessary. 

For  that  purpose,  the  other  banks  of  Philadelphia  agreed  to 
return  five  millions  of  its  circulation  held  by  them,  and  to  take 
in  lieu  thereof,  post  notes,  payable  in  about  twelve  months  after 
date.  They  thought  that  a  loan  of  two  millions  and  a  half 
would  be  sufficient  to  enable  them  to  grant  that  accommodation, 
and  that  with  such  aid  they  would  be  able  to  resume  and  main- 
tain specie  payments.  The  loan  was  obtained  principally  in 
Boston,  partly  in  New  York.  As  it  was  principally  paid  in 
checks  upon  Philadelphia  and  in  Baltimore  funds,  it  added  but 
little  to  the  available  resources. 

Besides  this  postponement  of  five  millions  of  its  debt,  the 
United  States  Bank  was,  rather  unexpectedly,  assisted  by  a 
further  loan  obtained  abroad,  which  added  more  than  three 
millions  of  dollars  to  its  immediately  available  resources.  The 
attempt  to  resume  nevertheless  failed  ;  and  it  was  impossible 
that  it  should  not  have  failed.  The  element  indispensable  for 
sustaining  any  bank,  confidence,  was  utterly  lost.  It  seems 
incredible  that  it  should  not  have  been  foreseen,  that,  as  soon  as 
the  United  States  Bank  paid  in  specie,  every  person  who  held 
its  notes  would  instantaneously  seize  the  opportunity  of  convert 
ing  them  into  cash  (k). 

The  principal  liabilities  of  the  United  States  Bank,  payable  on 
demand,  consisted  of  more  than  thirteen  millions  and  a  half  of 
bank  notes  and  post  notes,  which,  by  the  arrangement  with  the 
other  Philadelphia  banks,  were 

Reduced  to  about 7,650,000 

Due  to  banks  of  the  several  States 3,250,000 

Due  to  individual  depositors 2,970,000 

Guarantee  of  bonds  of  Planters  Bank,  &c 240,000 


$14,110,000 


(k)  The  opinion  of  the  writer  of  this  essay  was  asked,  at  the  time  when 
application  was  made  in  behalf  of  the  Philadelphia  banks  for  the  loan  mentioned 
in  the  text.  It  was  decidedly  against  a  compliance  with  the  request ;  and  the 
reason  assigned,  was  the  total  impossibility,  on  the  part  of  the  United  States 


45 

During  the  three  weeks  that  the  Bank  paid  in  specie,  its  pay- 
ments amounted  to  about  five  millions  six  hundred  and  thirty 
thousand  dollars,  viz. : 

Bonds  of  Planters  Bank, 240,000 

To  individual  depositors,  only 176,000 

To  State  banks 1,044,000 

And,  redemption  of  bank  notes 4,170,000 

Of  this  last  item,  one  million  and  a  half  were  for  notes  in  the 
hands  of  the  other  banks  of  Philadelphia  beyond  the  five  millions 
included  in  the  agreement ;  five  hundred  thousand  for  post  notes 
over-due,  and  eleven  hundred  thousand  for  accumulated  notes 
which  had  been  protested  and  sued  for.  The  drain,  instead  of 
being  extraordinary,  and  such  as  could  not  have  been  anticipa- 
ted, was  in  reality  less  than,  under  all  the  circumstances  of  the 
case,  might  have  been  expected. 

In  the  preceding  sketch,  the  acts  of  the  Bank  have  been  con- 
sidered only  in  reference  to  their  effect  on  the  currency  of  the 
country.  It  may  be  affirmed  that,  in  this  respect,  that  bank,  sub- 
sequent to  the  first  general  suspension  of  May  1837,  has  been 
the  principal,  if  not  the  sole,  cause  of  the  delay  in  resuming,  and 
of  the  subsequent  suspensions.  In  every  respect  it  has  been  a 
public  nuisance.  The  original  error  consisted  in  the  ambitious 
attempt  to  control  and  direct  the  commerce  of  the  country  ;  in 
the  arrogant  assumption  of  a  pretended  right  to  decide  on  the 
expediency  of  performing  that  which  was  an  absolute  duty  ;  and 
in  a  manifest  and  deliberate  deviation  from  the  acknowledgecj 
principles  of  sound  and  legitimate  banking. 

It  is  not  intended  here  to  investigate  the  facts  of  a  more  culpaT 
ble  nature  which  are  laid  to  the  charge  of  the  administrators  of 
the  Bank.  The  application  of  nine  hundred  thousand  dollars  se- 
cret service  money,  should  be  made  public.  The  mismanageT 
ment  and  gross  neglect,  which  could  in  a  few  years  devour  two- 
thirds  of  a  capital  of  thirty-five  millions,  are  incomprehensible,  and 
have  no  parallel  in  the  history  of  banks.  The  catastrophe  has  had 
an  injurious  effect  abroad  on  the  securities  of  the  several  States, 


Bank,  of  sustaining  specie  payments  now  that  confidence  was  entirely  lost.  The 
writer  added  that,  if  the  other  Philadelphia  banks  would  discard  that  of  the  United 
States  and  resume  alone,  not  one,  but  three  millions  ought  to  be  advanced  for 
that  purpose  by  the  banks  of  the  city  of  New  York. 


46 

impaired  commercial  credit,  and  shaken  confidence  between  man 
and  man.  It  is  natural  that  the  shareholders,  so  deeply  injured, 
should  cling  to  the  hope  of  preserving  the  institution,  and  of  thus 
partly  repairing  their  losses.  Every  facility  consistent  with  the 
public  good  should  be  granted,  every  forbearance  practised,  eve- 
ry delay  allowed,  which  may  enable  them  to  save  the  remnants 
of  the  wreck.  But  it  is  due  to  the  moral  feeling  of  the  country, 
not  less  than  to  the  security  of  its  fiscal  concerns,  that  this  dis- 
graced and  dangerous  corporation  should  not  be  permitted  any 
longer  to  exist.  How,  after  so  many  violations  of  its  charter,  its 
existence  has  been  so  long  protracted,  is  indeed  unintelligible ! 


REMEDIES. 

STATE  LEGISLATION. 

IT  can  hardly  be  expected  that  twenty-six  independent  States 
should  all  adopt  such  systems  of  legislation,  as  may  secure  a 
sound  and  uniform  currency.  But  there  are  some  great  centres 
of  commerce,  which  necessarily  control  the  banking  operations 
of  the  greater  part  of  the  country.  In  the  present  course  of 
trade,  the  great  importing  sea-ports  are  generally  creditor  places ; 
and  the  principal  centres  alluded  to  will  be  found  to  be,  Boston, 
New- York,  Philadelphia  and  Baltimore,  Charleston,  and  New- 
Orleans.  Providence,  on  account  of  its  manufactures,  Savannah 
and  Mobile,  on  the  sea-coast,  Cincinnati,  Louisville,  and  St. 
Louis,  in  the  interior,  are  the  next  most  important  points.  Some 
approximation  of  the  relative  importance  of  the  great  centres 
may  be  derived  from  the  aggregate  of  the  foreign  imports 
and  of  the  exports  of  each  of  them  respectively.  Supposing 
the  whole  to  consist  of  one  hundred  parts,  Boston  has  about 
twelve,  New- York  forty-seven,  Philadelphia  and  Baltimore  four- 
teen, Charleston  and  Savannah  seven,  New-Orleans  and  Mobile 


47 

twenty.  The  influence  of  domestic  manufactures,  of  mines,  and 
of  other  considerations,  must  of  course  vary  the  result. 

Of  those  great  centres,  the  two  first  are  secure ;  and  Charles- 
ton appears  to  have  adopted  a  correct  course.  The  banking 
system  of  New-Orleans  is  founded  on  principles  so  different  from 
those  of  the  Atlantic  States,  particularly  in  reference  to  the  large 
amount  loaned  on  real  estate  security,  that  it  is  difficult  to  form  a 
correct  opinion  of  it.  But  the  elements  of  wealth  are  so  great, 
and  the  interest  of  sustaining  a  sound  currency  so  obvious,  that, 
notwithstanding  the  embarrassed  situation  of  the  adjacent  States, 
great  hopes  are  entertained  of  an  ultimate  favorable  result  in  that 
quarter.  Under  all  the  circumstances  of  our  present  situation, 
it  seems  that,  provided  a  correct  course  should  be  adopted  by 
the  banks  of  Philadelphia,  and  by  the  Legislature  of  Pennsylva- 
nia, an  early  and  nearly  general  resumption  of  specie  payments 
would  naturally  take  place. 

The  first  step  that  appears  absolutely  necessary  does  not  ap- 
ply to  Pennsylvania  alone.  All  the  States  which  have  incurred 
debts,  and  which  have  not  yet  adopted  efficient  measures  in  that 
respect,  must  provide  for  the  punctual  payment  of  the  interest 
and  the  gradual  extinguishment  of  their  debt.  This  must  be 
done  by  providing  an  actual  revenue,  by  taxes  whenever  neces- 
sary, and  not  by  any  new  loans,  or  any  other  temporary  expe- 
dient. The  States  must  rely  on  their  own  resources,  neither  on 
any  direct  or  indirect  assumption  of  State  debts  by  the  General 
Government,  nor  on  any  assistance  to  be  derived  from  the  banks : 
neither  must  the  banks  depend  on  the  aid  of  the  States  for  car- 
rying on  their  operations.  The  difficulties  are  greater  in  some 
States  than  in  others.  A  great  error  has  been  committed  by 
those  which  have  advanced  their  credit  for  the  especial  purpose  of 
establishing  banks,  in  places  where  a  very  moderate  banking  ca- 
pital was  sufficient  for  all  legitimate  purposes.  Sanguine  expec- 
tations have  induced  others  to  undertake  premature,  and  far  too 
extensive,  internal  improvements,  which,  in  their  unfinished  state, 
are  nearly  or  altogether  unproductive.  The  honor  and  interest 
of  every  State  require,  and  justice  demands,  that  its  credit  should 
be  restored.  Public  and  private  credit  are  intimately  connected. 
That  of  individuals  is  impaired  when  public  faith  is  not  pre- 
served. A  resumption  of  specie  payments,  on  the  part  of  banks 


48 

and  of  individuals,  will  at  once  inspire  a  greater  confidence  in 
the  stocks  of  the  States  where  it  may  take  place.  There  is  none 
whose  resources  are  not  adequate  to  the  object  in  view. 

Philadelphia  had  a  sound  capital,  greater  in  proportion  to  its 
commerce  than  that  of  New- York,  or  of  almost  any  other  city 
in  the  Union  ;  its  banks  proper  were  sound  and  cautiously  ad- 
ministered :  not  one  of  them  had  ever  failed/  But  they  have  for 
several  years  been  pressed  by  two  great  evils,  the  United  States 
Bank  and  the  State  Legislature.  They  have  at  last  got  rid  of 
the  first  burthen,  from  which  they  ought  to  have  detached  them- 
selves long  ago.  Their  available  means  are  undoubtedly  im- 
paired by  the  efforts  they  made  to  sustain  the  Great  Bank,  and  by 
the  debt  due  to  them  on  that  account.  Still,  provided  they  are 
sustained  by  the  commercial  community  and  by  public  opinion, 
and  provided  the  State  Legislature  ceases  to  oppress  them  un- 
der color  of  granting  them  relief,  there  does  not  seem  to  be  any 
real  obstacle  to  their  soon  resuming  their  former  wonted  and 
honorable  situation. 

The  suspension  of  specie  payments  of  October  1839,  was  le- 
galized by  the  Legislature  of  Pennsylvania,  on  condition  that  the 
banks,  thus  indulged,  should  make  certain  loans  of  money  to  tho 
State,  and  resume  their  payments  in  January  1841.  To  take 
from  them  their  most  available  resources,  had  a  direct  tendency 
to  put  it  out  of  their  power  to  resume  their  payments  within  the 
prescribed  time.  Those  resources,  which  should  have  been  ap- 
plied to  the  reduction  of  the  liabilities  of  the  banks,  and  to  the 
measures  necessary  for  a  resumption,  were  diverted  from  their 
legitimate  object,  in  order  to  defray  the  annual  expenditures,  or 
to  pay  the  interest  on  the  debt  of  the  State. 

The  two  last  General ,  Assemblies  of  Pennsylvania  have, 
however,  adopted  efficient  measures  to  arrest  the  progress  of  the 
debt,  and  to  provide  for  the  payment  of  the  interest.  A  new  an- 
nual revenue,  derived  from  taxation  alone,  and  which  is  expected, 
according  to  the  most  correct,  estimates,  not  to  fall  short  of  two 
millions  two  hundred  thousand  dollars,  is  specifically  pledged  to 
the  maintenance  of  the  public  credit;  and  the  interest  on  the 
public  debt  cannot  exceed  two  millions,  and  will  probably  fall 
short  of  that  sum.  The  ordinary  expenses  of  Government,  and 
the  repairs  of  the  public  works,  appear  to  be  nearly,  if  not  al- 


49 

together,  provided  for  by  the  tolls  and  other  revenues  of  the 
State.  Thus  far,  great  praise  is  due  to  the  Legislature  for  hav- 
ing extricated  the  State  from  the  difficulties  in  which  it  had  been 
involved,  and  for  having  fearlessly  resorted  to  those  direct  means 
which  alone  could  effect  the  purpose. 

After  having  accomplished  the  principal  object,  nothing  else 
remained  than  to  provide  for  the  payment  of  arrears,  and  the  or- 
dinary annual  expenditures  of  the  current  year,  amounting  to- 
gether to  three  millions  one  hundred  thousand  dollars.  It  is 
deeply  to  be  lamented  that,  instead  of  also  pursuing  the  simplest 
and  most  direct  course  for  this  object,  the  Legislature  should 
have  resorted  to  a  novel,  complex,  and  most  condemnable  plan. 

A  loan  for  the  sum  thus  wanted  is  authorised,  for  which  a 
five  per  cent,  stock  will  be  issued,  to  be  redeemed  at  the  end  of 
five  years,  or  earlier  at  the  pleasure  of  the  Legislature.  To  that 
loan,  certain  banks  (/)  are  alone  authorised  to  subscribe,  to  an 
amount  bearing,  according  to  their  respective  capitals,  a  ratio 
varying  from  eight  to  twenty-five  per  cent,  to  the  capital.  And, 
on  paying  into  the  State  Treasury  the  amount  subscribed  in 
their  bank  notes  of  one,  two  and  five  dollars,  they  are  credited 
on  the  Treasury  books  for  an  equal  amount  of  the  stock. 

The  notes  thus  issued  are  payable  only  in  the  same  stock,  and 
in  the  following  manner.  The  holder  of  the  notes  to  an  amount 
of  one  hundred  dollars,  on  surrendering  the  same  to  the  issuing 
bank,  receives  an  order  on  the  Auditor  General  for  a  certificate 
of  an  equal  amount  of  the  stock,  and  the  notes  surrendered  are 
cancelled.  The  State,  until  the  notes  are  thus  redeemed,  pays 
to  the  banks  interest,  at  the  rate  of  one  per  cent,  a  year,  on  the 
stock  for  which  they  are  credited  on  the  Treasury  books.  And 
after  the  notes  have  been  thus  redeemed  and  funded,  the  State 
pays,  through  the  agency  of  the  banks,  the  interest  of  five  per 
cent,  to  the  holders  of  the  stock  which  has  been  issued  in  pay- 
ment of  the  notes.  That  interest 'is  paid  out  of  the  proceeds  of 
the  tax  on  bank  dividends  ;  and  if  this  should  not  be  sufficient, 
the  deficiency  is  paid  out  of  the  revenue  provided  by  the  act. 

All   the  notes  issued    under  the  provisions  of  the  act,  are 

(T)  Viz.,  as  appears  from  the  subsequent  provisions,  those  banks  which  are  subject 
to  a  tax  on  their  dividends. 

7 


50 

receivable  for  debts  due  to  the  commonwealth  and  to  the  issuing 
banks  respectively,  and  also  on  deposit,  by  the  said  banks 
respectively,  payable  in  like  currency,  special  contracts  for 
deposits  excepted.  All  the  notes  rnay  be  re-issued  from  the 
Treasury  and  from  the  issuing  banks  respectively  ;  and  the 
banks  generally  may  receive  and  issue  any  of  the  notes  created 
by  the  act. 

All  the  banks,  except  that  of  the  United  States,  which  own 
any  portion  of  the  funded  debt  of  the  State,  may,  on  transferring 
the  same  as  security  to  the  Auditor  General,  issue  notes  to  an 
equal  amount,  of  the  same  denomination,  and  receivable  and 
redeemable  in  the  same  manner  as  the  notes  before  described. 
But  the  banks  which  are  exempted  from  a  tax  on  their  dividends 
shall  not  issue  a  greater  amount  of  notes,  than  in  the  aforesaid 
ratio  to  their  respective  capitals  ;  and  the  banks  subject  to  that 
tax  shall  not,  under  this  section  of  the  act,  issue  a  greater  amount 
than  seven  per  cent,  of  their  respective  capitals.  The  interest 
on  the  stock  thus  transferred  is  suspended,  during  the  time  the 
said  stock  remains  in  the  hands  of  the  Auditor  General  (m). 

17th  Sect.  No  bank,  which  shall  comply  with  the  provisions 
of  this  act,  shall  be  subject,  by  way  of  penalty  or  otherwise,  to  a 
greater  rate  of  interest  than  six  per  cent,  per  annum.  The 
resolution  of  April  1840,  which  provided  for  the  resumption  of 
specie  payments,  is  repealed.  And  all  the  provisions  of  any  act 
of  incorporation,  or  of  any  law  of  the  State,  which  provided  for 
the  forfeiture  of  any  charter,  by  reason  of  the  non-payment  of 
any  of  the  liabilities  of  the  bank,  or  which  prohibited  the  banks 
from  making  loans  and  discounts,  issuing  their  own  notes,  or 
declaring  dividends  during  the  suspension  of  specie  payments, 
are  suspended,  until  further  legislative  action,  and  until  the 
Legislature  shall  provide  for  the  repayment  of  the  loan  of 
three  millions  one  hundred  thousand  dollars  authorised  by  the 
act.  But  the  dividends  are  limited  to  five  per  cent,  during  the 
suspension. 


(m)  It  appears,  therefore,  that  all  the  banks,  whether  subject  to,  or  exempt  from 
a  tax  on  their  dividends,  are  authorised  to  issue  notes  in  the  ratio  to  their  capitals 
fixed  by  the  law ;  and  that,  in  addition  thereto,  the  banks  subject  to  that  tax  may 
issue  notes  to  an  amount  not  exceeding  seven  per  cent,  of  their  capital. 


51 

The  banks  subject  to  a  tax  on  their  dividends,  which  shall  not 
take  their  due  proportion  of  the  loan,  according  to  the  ratio  fixed 
by  law,  (not  including,  it  seems,  the  seven  per  cent,  additional 
which  appears  to  be  optional,)  and  the  other  banks,  which  shall 
not  deposit  at  least  five  per  cent,  on  their  capitals  respectively, 
shall  remain  subject  to  the  provisions  of  the  laws  now  in  force, 
and  be  excepted  from  the  benefit  of  the  provisions  of  the  17th 
section  of  the  act.  Nor  shall  the  United  States  Bank  be 
entitled  to  the  said  benefits,  unless  the  stockholders  consent  to 
be  subject  to  any  general  laws  to  be  hereafter  passed  for  the 
regulation  of  the  banks  of  the  commonwealth.  There  are  other 
provisions  authorising  and  facilitating  the  dissolution  and  liquida- 
tion of  that  bank,  with  the  consent  of  the  stockholders. 

The  residue  of  the  act  provides,  for  raising  an  additional 
revenue,  and  for  appropriating  the  proceeds  of  the  loan  of  three 
millions  one  hundred  thousand  dollars,  viz.  about  two  millions 
two  hundred  thousand  for  repairs  and  arrears  on  account  of  the 
internal  improvements,  and  about  eight  hundred  thousand  for 
schools  and  the  other  ordinary  annual  expenses  of  Government. 
Those  objects  were  evidently  blended  in  the  same  law  with  the 
provisions  respecting  the  banks,  in  order  to  ensure  the  adoption 
of  these  provisions. 

Viewed  simply  as  a  fiscal  operation,  it  makes  the  banks  only 
the  agents  of  the  State.  They  sign  the  notes  pro  forma,  and 
redeem  them  in  its  behalf.  The  State  puts  the  notes  in  circu- 
lation, uses  them  for  its  own  benefit,  redeems  them  with  its  own 
stock,  pays  the  interest,  and  is  bound  at  the  end  of  five  years  to 
pay  the  principal,  in  specie,  with  its  own  funds.  The  banks,  for 
their  agency,  receive  the  compensation  of  one  per  cent,  a  year 
on  the  notes,  so  long  as  they  remain  in  circulation.  The  notes 
are  substantially  an  emission  of  bills  of  credit,  by  the  State  and 
for  the  use  of  the  State.  How  far  this  operation  may  in  itself 
be  proper,  or  consistent  with  the  Constitution  of  the  United 
States,  are  questions  which  do  not  come  within  the  scope  of  this 
essay.  The  measure,  considered  only  in  reference  to  its  effect 
on  the  currency  and  on  the  resumption  of  specie  payments, 
hardly  requires  to  be  discussed.  It  is  almost  sufficient  to  have 
stated  the  provisions  of  the  law. 

The  banks  of  Philadelphia,  notwithstanding   the  difficulties 


52 

which  they  had  to  encounter,  had  succeeded  in  keeping  their 
currency,  their  deposits,  their  liabilities  payable  on  demand,  all 
which  is  generally  called  "  Philadelphia  funds,"  at  a  discount, 
compared  with  specie,  of  less  than  five  per  cent.  An  emission 
of  a  new  species  of  currency  is  now  authorised,  which,  being 
only  a  promise  to  issue  a  State  stock  to  the  same  amount,  is,  on 
the  day  when  it  is  issued,  worth  intrinsically  no  more  than  that 
stock,  or  less  than  eighty  per  cent,  of  its  nominal  value.  It  may 
be,  that  the  demand  created  by  having  made  that  currency 
receivable  in  payment  of  debts  to  the  commonwealth  and  to  the 
bank,  may  enhance  that  value.  This  is  altogether  conjectural : 
and  it  cannot  certainly  be  expected  that  it  will  become  equal  to 
that  of  the  actual  currency  at  this  moment  of  the  Philadelphia 
banks.  Under  the  most  favorable  aspect,  it  is  still  a  legalized 
emission  of  a  depreciated,  fluctuating  and  irredeemable  paper, 
analogous  to  a  falsification  of  the  legal  coin  of  the  country. 
And  in  order  to  carry  this  plan  into  effect,  it  has  been  deemed 
necessary  to  compel  the  banks  to  receive  that  paper  in  payment 
of  the  debts  due  to  them,  arid  to  give  a  solemn  legislative 
sanction  to  a  protracted  suspension  of  specie  payments  ;  that  is 
to  say,  to  a  continued  immoral  and  illegal  violation  of  engage- 
ments and  contracts,  for  a  term  which  may  be  not  less  than  five 
years. 

Had  there  been  no  other  object  in  view,  than  that  of  provid- 
ing for  the  discharge  of  the  arrears  and  necessary  expenses  of 
the  year,  for  which  a  loan  was  indispensable,  the  simple  and 
direct  course  was  to  borrow  the  money  on  the  best  terms  on 
which  it  could  be  obtained.  This  is  the  cheapest  and  wisest,  as 
it  is  the  most  honest  mode.  Every  other  complex,  and,  as  it  is 
called,  ingenious  contrivance  is  nothing  but  quackery,  if  not 
something  worse.  There  is  indeed  much  difficulty,  when  heavy 
taxes  become  necessary,  in  selecting  those  which  will  be  most 
equal  and  productive,  least  oppressive  and  arbitrary.  But  there 
is  no  more  mystery  in  directing,  in  ordinary  times,  the  finances 
of  a  nation,  than  in  arranging  the  fiscal  concerns  of  a  commer- 
cial house.  In  both  cases,  if  it  becomes  necessary  to  borrow, 
you  must  pay  for  the  money,  according  to  its  market  price,  and 
to  the  credit  of  the  borrower.  Indeed,  in  that  respect,  the  State 
has  the  advantage  of  not  being  trammelled  by  its  own  absurd 


53    - 

usury  laws,  which  may  compel  the  individual  to  pay  a  dearer 
price  for  the  loan  than  he  otherwise  would. 

In  the  year  1798,  the  United  States  borrowed  five  millions  at 
eight  per  cent,  per  annum.  During  the  last  war,  they  gave 
their  six  per  cent,  stock  for  money,  at  the  rate  of  eighty  per 
cent,  of  its  nominal  value.  Which  was  the  most  eligible  mode 
is  a  debatable  question.  But,  on  both  occasions,  they  were 
obliged  to  give,  and  gave  without  hesitation,  their  stock  for  the 
highest  price  it  could  command.  It  is  what  every  Government, 
which  has  any  regard  for  its  credit,  always  does.  The  State  of 
New  York  wanted  also  three  millions  of  dollars  for  the  service 
of  this  year.  The  market  price  of  her  stocks  is  higher  than 
that  of  those  of  Pennsylvania.  Yet  she  did  not  attempt  to  bor- 
row at  five  per  cent.,  but  has  authorised  a  voluntary  loan  at  the 
rate  of  six  per  cent.  It  is  probable  that  a  similar  stock,  issued 
by  Pennsylvania,  could  not,  at  this  moment,  have  been  negotiated 
at  par.  But,  with  the  knowledge  that  efficient  provision  had 
been  made  for  the  payment  of  the  interest  of  the  public  debt, 
and  that  a  course  of  measures  had  been  adopted  which  would 
prevent  its  increase,  had  the  Legislature  only  taken  measures  for 
hastening,  instead  of  protracting,  the  resumption  of  specie  pay- 
ments, the  effect  on  the  public  credit  of  the  State  would  have 
been  immediate  ;  and  a  direct  loan  at  six  per  cent,  might  have 
been  negotiated  on  favorable  terms. 

There  is,  indeed,  no  other  remedy,  so  far  as  it  depends  on  the 
State,  for  the  evils  inflicted  by  the  act  of  the  late  General  As- 
sembly. For,  if  the  banks  accept  the  proposal,  they  may  claim, 
as  a  condition  of  the  contract,  that  all  the  suspending  clauses  of 
the  act  shall  continue  in  force,  until  provision  shall  have  been 
made  for  the  re-payment  of  the  loan.  This  cannot  be  done 
otherwise  than  by  negotiating  a  money  loan  in  the  ordinary 
way.  Whether  this  shall  be  done  by  the  next  Legislature,  de- 
pends on  the  will  of  the  people.  At  this  time,  and  had  it  not 
been  for  that  most  unfortunate  impediment,  there  would  have 
been  no  more  difficulty  in  resuming  specie  payments  in  Phila- 
delphia within  sixty  days,  provided  the  commercial  community 
of  that  city  required  it,  than  there  is  now  in  sustaining  those 
payments  in  New  York.  New  England  and  New  York  should, 
at  all  times,  give  every  possible  aid  in  promoting  that  object.  It 


54 

is  a  national  concern,  on  account  both  of  the  importance  of  that 
city,  and  of  its  great  influence  over  the  commercial  transactions 
and  currency  of  the  West  and  of  the  South. 


The  dangers  of  a  paper  currency  are  such,  that  it  becomes 
necessary  to  inquire  whether  the  banking  system  adopted,  in 
those  States  where  the  result  has  been  most  favorable,  may 
not  be  susceptible  of  improvement.  For  that  purpose  the  laws 
which  govern  the  banks  of  New  York  will  now  be  examined. 
They  are  better  known  to  the  writer  than  those  of  any  other 
State ;  the  system  has  been  at  least  as  successful  here  as  in  any 
other  part  of  the  Union ;  and  it  now  embraces  both  restricted 
chartered  banks,  and  free  banking  associations  established  under 
a  general  law. 

The  various  legal  provisions,  by  which  the  banks  of  the  State 
of  New  York  are  governed,  consist  principally  of  general  laws 
respecting  monied  corporations,  partly  of  clauses  inserted  in 
the  several  charters  and  nearly  the  same  in  all,  but  which  it 
would  have  been  better  to  have  included  amongst  the  general 
laws. 

The  privileges  granted  by  the  charters  are,  1st,  the  Act  of  In- 
corporation itself,  which  enables  the  bank  to  contract,  to  sue 
and  be  sued,  and  generally  to  act,  in  reference  to  the  object  for 
which  it  is  incorporated,  in  the  same  manner  as  might  be  done 
by  a  natural  person  ;  2dly,  the  limitation  of  responsibility  to  the 
capital  of  the  bank,  thus  rendering  the  shareholders  irresponsible 
jn  their  personal  capacity  ;  3dly,  the  monopoly,  till  lately,  of  car- 
rying on  banking  operations. 

Those  operations  are  not  expressly  defined  by  the  general 
laws  of  the  land,  but  by  the  charters  themselves,  and  substan- 
tially as  follows,  viz. :  that  the  bank  shall  have  power  to  carry 
on  the  business  of  banking,  by  discounting  bills,  notes,  and  other 
evidences  of  debt ;  by  receiving  deposits  ;  by  buying  and  selling 
gold  and  silver  bullion,  foreign  coins,  and  bills  of  exchange  ;  by 
issuing  bills,  notes,  and  other  evidences  of  debt ;  and  by  exer- 
cising such  other  incidental  powers  as  shall  be  necessary  to 
carry  on  such  business. 


55 

It  might  be  inferred  by  implication,  that  the  banks  could  not 
legally  carry  on  any  other  species  of  business.  For  greater 
security,  it  is  further  expressly  provided  in  all  the  charters  :  1st, 
that  no  bank  shall  hold  any  real  estate  but  such  as  is  requisite 
for  its  immediate  accommodation,  or  such  as  may  be  mortgaged, 
conveyed  or  purchased  in  satisfaction  of  debts,  or  for  the  purpose 
of  securing  debts;  2dly,  that  it  shall  not,  directly  or  indirectly, 
deal  or  trade  in  buying  or  selling  any  goods,  wares,  merchan- 
dizes, or  commodities  whatsoever,  or  in  buying  or  selling  any 
stock  created  under  any  act  of  the  United  States,  or  of  any  par- 
ticular State,  unless  in  selling  the  same  when  truly  pledged, 
by  way  of  security,  for  debts  due  to  the  said  corporation. 

The  location,  duration,  and  capital  of  each  bank  respectively, 
are  also  determined  by  its  charter.  The  other  provisions  refer 
to  the  following  objects,  viz. : 

1.  Capital. — No  bank  can  commence  its  operations  until  the 
whole  of  its  capital  has  been  paid  in  specie  or  current  bank  bills  ; 
nor  until  an  affidavit  to  that  effect,  and  stating  that  no  stock- 
holder has  paid  any  part  of  his  shares  by  a  discounted   note, 
or  directly  or  indirectly  with  any  loan  from  the  bank,  has  been 
made  by  the  President  and  Cashier  of  the  bank  and  filed  with 
the  Comptroller.     False  swearing  in  that  respect  is  deemed  per- 
jury, and  punished  as  such. 

For  the  purpose  of  preserving  the  capital,  the  banks  are  for- 
bidden, besides  other  provisions,  to  make  any  dividend  except 
from  their  surplus  profits.  In  calculating  the  profits,  all  the  ex- 
penses, the  interest  due  on  debts  contracted  by  the  bank,  and 
all  the  losses,  including  therein  all  the  debts  due  to  the  bank  on 
which  no  interest  has  been  paid  for  one  year,  must  be  deducted  ; 
and  if  the  amount  of  losses  should  exceed  that  of  the  profits  then 
possessed,  the  deficiency  must  be  charged  as  a  reduction  of  the 
capital ;  and  no  dividends  can  be  paid  until  the  deficit  of  the 
original  capital  shall  be  made  good.  That  capital  cannot  be 
reduced  without  leave  of  the  Legislature. 

2.  Restrictions  on  Banking  Operations. — The  banks  are  for- 
bidden to  have  an  amount  of  bank  notes  in  circulation  exceed- 
ing a  rate  which  varies  according  to  their  respective  capitals, 
so  as  not  to  exceed  once  and  a  half  its  amount  when  that 
capital  is  not  more  than  one  hundred  thousand  dollars,  nor  sixty 


56 

per  cent,  of  that  amount,  when  the  capital  is,  or  exceeds,  two 
millions;  to  extend  their  loans  and  discounts  beyond  twice 
and  a  half  the  amount  of  their  respective  capital ;  to  issue  notes 
not  payable  on  demand,  or  bearing  interest  (post  notes)  ;  to  issue 
notes  of  a  less  denomination  than  one  dollar  ;  to  purchase  their 
notes  for  less  than  their  nominal  value  ;  to  lend  or  discount  on 
the  security  of  their  own  stock  ;  to  charge  more  than  six  per 
cent,  interest  on  discounted  notes  payable  within  sixty-three 
days ;  to  make,  directly  or  indirectly,  any  loans  or  discounts  to 
their  directors  respectively,  to  an  amount  exceeding  in  the 
aggregate  one  third  of  their  capital. 

3.  Directors. — Besides  the  limitation  on  their  own  discounts, 
they  are  made  personally  liable,  if  consenting  to  any  act  in  vio- 
lation of  the    laws    respecting    monied    corporations.      Every 
director    must    have  a  number  of  shares  determined    by  the 
charter.     No  director  or  officer  of  the  bank  is  permitted  to  pur- 
chase, discount,  or  loan  money  on  a  note  which  has  been  rejected 
by  the  bank. 

4.  Inspection  and  Publicity. — -It    is  the  duty  of  three  bank 
commissioners,  appointed  by  the  Governor  and  Senate,  to  inspect, 
once  at  least  in  every  four  months,  the  affairs  of  every  bank  ; 
to  examine  all  their  books,  papers,  notes,  bonds,  and  other  evi- 
dences of  debt ;  to  ascertain  the  quantity  of  specie  on  hand,  and 
generally  the  actual  condition  of  the  banks  and  their  ability  to 
fulfil  their  engagements.     The  commissioners  are  authorised  to 
examine  upon  oath  all  the  officers  of  the  banks,  or  any  other 
person,  in  relation    to  their    affairs   and   condition ;    and    they 
must  report  annually  to  the  Legislature  abstracts  from  the  re- 
port made  to  them,  and  such  other  statements  as  they  may  deem 
useful. 

5.  Suspension  and  Dissolution. — All  the  banks  created  subse- 
quent to  the  year  1828  are,  by  provisions  inserted  in  their  char- 
ters, directed,  as  has  already  been  stated,  to  discontinue    their 
operations,  unless  permitted    by  the  Chancellor,  if   they  shall 
neglect  or  refuse,  for  ten  days,  to  redeem  in  specie  any  evidence 
of  debt  issued  by  them.     This  special  provision  has  not  been 
inserted  in  the  charters  of  the  old  banks  which  have  been  re- 
newed since  that  time.     During  a  suspension  of  specie  pay- 
ments, the  suspending  banks  are  obliged  to  pay  damages,  at  the 


57 

rate  of  ten  per  cent,  a  year,  on  every  evidence  of  debt,  the  pay- 
ment of  which  has  been  demanded  and  refused. 

It  is  provided  by  the  general  laws,  that,  if  any  bank  shall 
have  lost  one  half  of  its  capital  stock,  or  shall  have  suspended  the 
payment  of  its  bills  in  specie  for  ninety  days,  or  shall  refuse  to  allow 
its  officers  to  be  examined  upon  oath  by  the  commissioners,  the 
said  commissioners  may,  and,  if  they  ascertain  that  the  bank  is 
insolvent,  or  has  violated  any  of  the  provisions  binding  on  such 
bank,  they  shall,  apply  to  the  Court  of  Chancery  for  an  injunction 
against  such  bank  and  its  officers.  The  Attorney  General,  and 
every  creditor,  director,  and,  in  some  cases,  stockholder  of  the 
bank,  may  also  apply  for  an  injunction. 

The  Chancellor,  upon  any  such  application,  may,  according  to 
circumstances,  suspend  or  dismiss  any  of  the  officers  of  the 
bank,  restrain  it  from  exercising  its  corporate  powers,  seques- 
trate its  property,  dissolve  it  as  an  insolvent  corporation,  and 
appoint  a  receiver  for  the  liquidation  of  its  affairs. 

It  is  further  provided  by  the  act  of  3d  December  1827,  which 
sanctioned  the  first  part  of  the  Revised  Statutes,  that  "  the  char- 
ter of  every  corporation,  that  shall  thereafter  be  granted  by  the 
Legislature,  shall  be  subject  to  alteration,  suspension,  and  repeal, 
in  the  discretion  of  the  Legislature"  (n). 

Finally,  it  is  enacted  by  the  third  part  of  the  Revised  Statutes, 
passed  as  one  act  on  the  10th  December  1828,  that  "  whenever 
any  incorporated  company  shall  have  remained  insolvent  for 
one  whole  year ;  or  for  one  year  shall  have  neglected  or  refused 
to  pay  and  discharge  its  notes  or  other  evidences  of  debt ;  or 
for  one  year  shall  have  suspended  the  ordinary  and  lawful  busi- 
ness of  such  corporation  ;  it  shall  be  deemed  to  have  surren- 
dered the  rights,  privileges  and  franchises  granted  by  any  act  of 
incorporation,  or  acquired  under  the  laws  of  this  State,  and  shall 
be  adjudged  to  be  dissolved"  (o). 

6.  Safety  Fund.—'Eivery  bank  chartered,  or  the  charter  of 
which  has  been  renewed  subsequent  to  the  act  of  April  2d  1829, 
pays  annually,  during  six  years,  to  the  Treasurer  of  the  State,  a 


(n)  Revised  Statutes,  Part  I.,  Chap,  xviii.,  Title  3d,  Section  8, 
(o)  Revised  Statutes,  Part  III.,  Chap,  viii.,  Title  4th,  Art.  2d,  Section  38. 
ft 


58 

sum  equal  to  one  half  of  one  per  cent,  on  its  capital.  These 
payments,  called  the  "  bank  fund,"  are  appropriated  to  the  pay- 
ment of  such  of  the  debts  of  any  of  the  said  banks  which  shall 
become  insolvent,  as  shall  remain  unpaid,  after  applying  the  pro- 
perty and  effects  of  such  insolvent  bank.  And  whenever  the 
fund  shall  be  reduced,  by  the  payment  of  such  debts,  to  less  than 
three  per  cent,  upon  the  aggregate  capital  of  the  banks,  every 
bank  shall  again  renew  its  annual  payments  of  one-half  of  one 
per  cent,  on  its  capital,  until  the  fund  shall  again  amount  to  three 
per  cent,  on  the  aggregate  capital. 

It  cannot  be  denied  that  the  banking  system  of  the  State  of 
New  York,  since  it  has  been  subject  to  these  regulations,  has 
proved  superior  to  most,  and  inferior  to  none,  of  the  plans  adopted 
in  other  States.  The  banks,  though  they  did  suspend,  were  the 
first  to  resume,  arid  have  ever  since  maintained  specie  payments. 
Since  the  year  1830,  only  two  banks  subject  to  the  regulations, 
have  been  dissolved.  One  of  these,  having  a  capital  of  one 
hundred  thousand  dollars,  was  for  some  irregularity  dissolved 
by  act  of  the  Legislature.  It  paid  all  its  debts,  and  the  whole  of 
its  capital  to  the  stockholders.  The  other  (the  City  Bank  of 
Buffalo)  was  dissolved  by  process  of  law  ;  and  its  entire  capital 
of  four  hundred  thousand  dollars  is  sunk.  During  the  same 
period  of  ten  years,  and  under  a  regimen  till  lately  much  less 
severe,  not  less  than  nine  banks  in  Boston,  with  a  capital  of  three 
millions  six  hundred  thousand  dollars,  have  failed,  or  been  dis- 
solved ;  but  in  five  of  those  cases,  the  creditors  suffered  no  ulti- 
mate loss. 

The  provisions,  which  define  and  limit  the  legitimate  opera- 
tions of  the  banks,  as  well  as  those  which  ensure  the  actual 
payment  of  the  capital,  or  are  intended  to  preserve  it  entire, 
have  proved  efficient  and  do  not  seem  to  require  any  alteration, 
It  has  been  often  suggested,  and  instances  have  been  adduced  to 
prove,  that  provisions  for  ensuring  the  actual  payment  of  capital 
might  be  evaded.  The  instances  adduced  have  occurred  when 
the  provisions  were  inadequate.  None  has  taken  place  amongst 
the  New  York  banks  subject  to  the  present  system.  It  will  not 
be  asserted  that  such  instances  may  not  occur  ;  but  when  they 
are  so  extremely  rare,  to  argue  thence,  that  the  provisions  are 
unnecessary  or  inefficient,  is  as  illogical  as  an  attempt  to  prove 


59 

that,  because  some  criminals  escape,  laws  for  the  punishment  of 
crimes  are  unnecessary  and  inefficient. 

For  the  enforcement  of  those  provisions  and  of  the  other 
restrictions  on  banking  operations,  an  inspection  and  thorough 
investigation  of  the  affairs  of  the  banks,  by  officers  unconnected 
with  those  institutions,  were  necessary  ;  and  those  investigations 
by  the  Bank  Commissioners,  as  well  as  the  publicity  given  to 
their  statements,  have  proved  eminently  useful.  No  further 
provision  in  this  respect  seems  necessary. 

Two  additional  regulations  only,  of  primary  importance,  will 
be  suggested.  The  first  relates  to  the  restrictions  on  the  amount 
of  loans  and  discounts ;  the  other  to  the  provisions  in  case  of 
suspension  of  specie  payments. 

The  restriction  on  the  amount  of  issues  was  originally  almost 
nominal,  inasmuch  as  it  far  exceeded  the  amount  which  any  bank 
might  or  did  issue.  The  amount  now  permitted  is  still  too 
great,  at  least  for  banks  which  have  but  a  small  capital.  This 
condition  may  still  be  retained  ;  but  it  will  lose  much  of  its  impor- 
tance, provided  the  restriction  upon  the  loans  and  discounts 
shall  be  modified. 

All  the  debits  and  credits  of  a  bank  may,  for  the  sake  of  per- 
spicuity, be  reduced,  on  the  one  side,  to  the  capital,  circulation 
and  deposites  ;  on  the  other,  to  the  real  estate,  the  amount  of 
loans,  discounts,  and  other  investments  bearing  interest,  and  the 
specie.  For  all  the  other  items,  of  which  the  principal  are  the 
notes  of  other  banks  on  hand,  and  the  balances  due  to  and  from 
other  banks,  may  be  included  under  some  of  the  general  heads 
above  mentioned.  Thus,  for  instance,  all  the  balances  due  to 
other  banks  are  deposits  ;  and  all  the  notes  of  other  banks,  or 
balances  due  by  them,  should,  if  the  bank  has  been  properly  ad- 
ministered, be  available  resources,  tantamount  to  specie.  It 
is  obvious,  that  the  maximum  of  the  investments  bearing  inter- 
est will  regulate  all  the  other  varying  items. 

Supposing,  for  instance,  that  the  maximum  of  discounts,  loans, 
and  other  investments,  bearing  interest,  should  never  exceed 
once  and  three-fifths  of  the  capital  of  the  bank,  and  that  the 
statement  of  a  bank,  having  a  capital  of  one  million,  should  on 
any  given  day  be  as  follo'ws,  viz. : 


60 


Capital $1,000,000 

Circulation  and  deposits. ..    1,000,000 


2,000,000 


Real  estate $    100,000 

Loans,  discounts,  stocks,  &c.  1,600,000 
Specie 300,000 

2,000,000 


— it  is  evident  that,  since  the  capital  and  real  estate  are  constant 
quantities,  and  the  amount  of  loans,  &c.  is  at  its  maximum,  any 
increase  in  the  circulation  and  deposits,  or  any  other  liabilities  of 
the  bank,  must  necessarily  produce  a  corresponding  increase  of 
specie  or  available  resources  of  the  bank.  And  the  effect  of  this 
would  be  to  strengthen  instead  of  weakening  the  bank  ;  since  the 
ratio  of  available  resources  to  liabilities  payable  on  demand 
would  thereby  be  increased.  The  efficiency  of  the  provision  de- 
pends entirely  on  the  reduction  of  the  maximum  of  loans  and 
discounts,  so  that  they  shall  not  exceed  the  amount  necessary  to 
ensure  a  sufficient  dividend. 

That  maximum  is  now  fixed  at  twice  and  a  half  the  amount 
of  the  capital,  which  would  yield  a  gross  profit  of  at  least  fifteen 
per  cent. ;  and,  after  deducting  three  per  cent,  for  expenses,  tax, 
and  contingencies,  leave  a  dividend  of  twelve  per  cent,  on  the 
capital;  and  a  dividend  of  even  fifteen  per  cent,  has  accordingly 
been  sometimes  realized  by  country  banks  with  a  small  capital. 
Considered  as  a  whole,  the  excessive  and  fatal  expansions  of  the 
years  1836-1837,  could  not  have  taken  place,  had  the  maximum 
been  properly  regulated.  On  the  1st  of  January  1837,  the 
loans,  discounts  and  stocks  of  the  ninety  banks  subject  to  the 
bank-fund  law,  and  having  a  capital  of  thirty-two  millions  five 
hundred  thousand  dollars,  amounted  to  sixty-nine  millions,  that  is 
to  say,  to  twice  and  one-eighth  of  their  capital.  The  conse- 
quence was,  an  amount  of  circulation  and  deposits  of  forty-five 
millions,  with  less  than  six  millions  in  specie  (/?). 

As  the  legal  interest  of  New-York  is  seven  per  cent,  the  ave- 
rage interest  on  discounts  may,  independent  of  occasional  profits 
on  exchange,  be  estimated  at  six  and  a  half  per  cent.  If,  there- 
fore, the  maximum  of  loans,  discounts,  and  all  other  investments 


(p)  The  Manhattan  Company,  which  was  not  subject  to  the  law,  with  a  capi- 
tal of  $2,050,000,  had  extended  its  loans  and  discounts  to  $5,450,000  ;  and  its 
circulation  and  deposits  amounted  to  $4,920,000. 


61 

bearing  interest,  was  reduced  to  once  and  a  half  the  amount  of 
the  capital,  the  gross  profits  would  amount  to  nine  and  three 
quarters  per  cent.,  and,  after  deducting  three  per  cent,  for  ex- 
penses, &c.  leave  a  dividend  of  six  and  three  quarters  per  cent, 
on  the  capital.  In  point  of  fact,  a  reference  to  the  numerous 
bank  statements  of  different  States,  which  have  been  lately  pub- 
lished, will  show,  that  the  average  amount  of  the  loans,  dis- 
counts, &c.  of  well-administered  banks,  is  nearly  in  that  ratio. 

On  the  1st  January  1840,  the  loans,  discounts  and  stocks  of  the 
ninety  banks  of  the  State  of  New- York,  subject  to  the  bank- fund 
law,  and  having  a  capital  of  thirty-two  millions  five  hundred  and 
fifty  thousand  dollars,  amounted  to  fifty-three  millions  four  hundred 
and  twenty  thousand  dollars,  that  is  to  say,  in  the  ratio  of  one  hun- 
dred and  sixty-four  to  one  hundred  of  their  capital.  The  capital  of 
the  eighteen  city  banks,  of  the  same  description,  amounted  to  six- 
teen millions  six  hundred  thousand  dollars,  and  their  loans,  dis- 
counts and  stocks  to  twenty-five  millions  and  forty  thousand  dol- 
lars, that  is  to  say,  in  the  ratio  of  one  hundred  and  fifty-one  to  one 
hundred  of  their  capital.  The  aggregate  dividend  of  the  eigh- 
teen city  banks  was  6'87  per  cent.,  and  that  of  the  seventy-two 
country  banks  8*82  per  cent,  on  their  capital.  The  great  im- 
portance and  practicability  of  a  provision  fixing  that  maximum  are 
obvious.  The  ratio,  at  most,  of  one  hundred  and  sixty  to  one 
hundred  of  the  capital  may  be  proper,  as,  under  that,  banks  will 
hardly  ever  exceed  one  hundred  and  fifty  to  one  hundred. 

With  respect  to  suspensions,  the  provision  which  compels  all 
the  new  banks  to  discontinue  their  operations,  except  the  secur- 
ing and  collecting  of  debts,  whenever  they  shall  decline  for  ten 
days  to  redeem  in  specie  any  evidence  of  debt  issued  by  such 
banks  respectively,  should,  in  the  first  place,  be  expressly  ex- 
tended to  all  their  liabilities  payable  on  demand,  and  be  made 
applicable  to  all  the  banks  without  exception. 

This  being  done,  and  in  case  the  Chancellor  should  permit  any 
bank  thus  suspended  to  proceed  in  its  business,  the  alteration 
proposed  is  that,  notwithstanding  the  leave  thus  given,  the  bank 
should,  until  it  had  resumed  payments  in  specie,  be  prohibited 
to  issue  any  of  its  notes,  to  increase  the  aggregate  of  its  loans 
and  discounts,  or  to  increase  the  amount  of  loans  previous- 
ly obtained  by  any  of  its  officers  or  directors.  For  the  purpose 


62 

of  rendering  the  first  of  these  provisions  efficient,  it  would  be 
further  necessary  to  prohibit  any  bank  whatever  to  issue  the 
notes  of  any  bank  which  had  suspended  specie  payments.  The 
following  advantages  would  ensue. 

In  the  first  place,  it  is  a  natural  remedy.  Since  the  banks  have 
been  permitted  to  issue  a  paper  currency  on  the  express  con- 
dition of  its  being  at  all  times  redeemable  in  specie,  the 
permission  should  cease  whenever  the*  condition  is  not  per- 
formed. The  prohibition  would  also  have  a  direct  tendency  to 
enable  the  solvent 'banks  to  resume  within  a  short  time.  And 
finally,  it  would  make  it  the  interest  of  all  the  parties  immediately 
concerned,  and  of  the  whole  community,  to  prevent  a  suspen- 
sion, or  to  make  it  of  the  shortest  possible  duration. 

Experience  has  shown,  that  persons  laboring  under  embar- 
rassments, or  from  some  temporary,  selfish  or  erroneous  motives, 
may  promote,  or  protract,  a  general  suspension.  If  they  are 
made  certain,  that  such  a  measure  will  make  money  more  scarce, 
as  it  is  called,  instead  of  more  abundant,  and  that  their  situation 
will  be  worse  instead  of  being  improved,  one  of  the  causes  which 
most  seriously  endangers  the  banking  system  will  be  removed. 

Other  improvements  of  less  importance  might  be  suggested. 

The  amount  discounted  for  any  one  director  might  be  limit- 
ed ;  the  banks  might  be  prohibited  from  making  any  loans  to  the 
president  or  cashier ;  and  these  two  officers  should  not  be  per- 
mitted to  deal  in  stocks. 

The  annual  tax  of  one  half  per  cent.,  imposed  under  the  name 
«of  "safety  fund,"  is  unjust  towards  the  banks  which  are  well  ad- 
.ministered,  and  injurious  to  the  community  at  large.  To  make 
a  bank  responsible  for  the  misconduct  of  another,  sometimes  very 
.distant,  and  over  which  it  has  no  control,  is  a  premium  given  to 
neglect  of  duty  and  to  mismanagement,  at  the  expense  of  the 
banks  which  have  performed  their  duty  and  been  cautiously  ad- 
ministered. That  provision  gives  a  false  credit  to  some  institu- 
tions, which,  not  enjoying  perfect  confidence,  would  not  other- 
wise be  enabled  to  keep  in  circulation  the  same  amount  of  notes  ; 
#nd  it  therefore  has  a  tendency  unnecessarily  to  increase  the 
amount  of  paper  money.  The  fund  would  be  inadequate  in 
£ase  of  any  great  failure ;  and  it  provides  at  best  only  against 


63 

ultimate  loss,  and  not  at  all  against  the  danger  of  a  general 
suspension. 

It  has  been  suggested  that,  although  every  legislative  attempt 
to  make  a  paper  currency  payable  at  different  place?,  a  general 
and  uniform  currency  for  an  extensive  country,  is  improper  and 
must  fail  (q),  yet  the  safety  fund  tax  might  be  rendered  less 
improper,  by  applying  it  to  each  county,  or  other  district  of 
country  prescribed  by  law,  respectively.  Thus  the  banks  would 
each  be  made  responsible,  to  the  extent  of  the  tax,  for  the  banks 
only  within  the  same  county  or  district.  They  would  all  there- 
by be  induced  to  watch  and  regulate  those  in  their  own  vicinity. 

In  connexion  with  this  branch  of  the  subject,  there  is  a  measure 
which,  though  belonging  to  the  administration  of  banks  rather 
than  to  legal  enactments,  is  suggested  on  account  of  its  great 
importance.  Few  regulations  would  be  more  useful,  in  prevent- 
ing dangerous  expansions  of  discounts  and  issues  on  the  part  of 
the  city  banks,  than  a  regular  exchange  of  notes  and  checks,  and 
an  actual  daily  or  semi-weekly  payment  of  the  balances.  It 
must  be  recollected,  that  it  is  by  this  process  alone  that  a  Bank 
of  the  United  States  has  ever  acted,  or  been  supposed  to  act,  as 
a  regulator  of  the  currency.  Its  action  would  not,  in  that  re- 
spect, be  wanted  in  any  city,  the  banks  of  which  would,  by  adopt- 
ing the  process,  regulate  themselves.  It  is  one  of  the  principal 
ingredients  of  the  system  of  the  banks  of  Scotland.  The  bank- 
ers of  London,  by  the  daily  exchange  of  drafts  at  the  clearing- 
house, reduce  the  ultimate  balance  to  a  very  small  sum;  and 
that  balance  is  immediately  paid  in  notes  of  the  Bank  of  Eng- 
land. The  want  of  a  similar  arrangement  amongst  the  banks 
of  this  city  produces  relaxation,  favors  improper  expansions,  and 
is  attended  with  serious  inconveniences.  The  principal  diffi- 
culty in  the  way  of  an  arrangement  for  that  purpose,  is  the  want 
of  a  common  medium  other  than  specie  for  effecting  the  pay- 
ment of  balances.  These  are  daily  fluctuating ;  and  a  perpetual 
drawing  and  redrawing  of  specie  from  and  into  the  Banks  is 
Unpopular  and  inconvenient. 


(gO  This  subject  will  again  be  adverted  to  in  reference  to  a  Bank  of  the  United" 
States. 


64 

In  order  to  remedy  this,  it  has  been  suggested,  that  a  general 
cash  office  might  be  established,  in  which  each  bank  should 
place  a  sum  in  specie,  proportionate  to  its  capital,  which  would 
be  carried  to  its  credit  in  the  books  of  the  office.  Each  bank 
would  be  daily  debited  or  credited  in  those  books  for  the  balance 
of  its  account  with  all  the  other  banks.  Each  bank  might  at 
anytime  draw  for  specie  on  the  office  for  the  excess  of  its  credit 
beyond  its  quota ;  and  each  bank  should  be  obliged  to  replenish 
its  quota,  whenever  it  was  diminished  one  half,  or  in  any  other 
proportion  agreed  on. 

It  may  be,  that  some  similar  arrangement  might  be  made  in 
every  other  county,  or  larger  convenient  district,  of  the  State. 
It  would  not  be  necessary  to  establish  there  a  general  cash 
office.  Each  of  the  banks  of  Scotland  has  an  agent  at  Edin- 
burgh, and  the  balances  are  there  settled  twice  a  week,  and 
paid  generally  by  drafts  on  London.  In  the  same  manner 
the  balances  due  by  the  banks,  in  each  district,  might  be  paid 
by  drafts  on  New  York,  or  any  other  place  agreed  on  ;  and 
the  notes  of  the  several  banks  in  the  same  district  would  be 
received  by  all,  and  be  a  common  and  uniform  currency  for  the 
whole  district.  But  the  process,  which  is  practicable  for  a 
country  of  no  greater  extent  than  that  portion  of  Scotland 
where  banks  are  established,  cannot  be  extended  beyond  certain 
limits.  It  cannot  certainly  be  applied  to  the  whole  of  the  United 
States,  nor,  it  is  believed,  to  the  whole  State  of  New  York,  so 
as  to  make  the  notes  issued  by  all  the  banks  a  uniform  currency 
for  the  whole. 

Paper  money  is  from  its  nature  a  local  currency,  confined 
to  the  place  where  it  is  made  payable  and  to  its  vicinity. 
The  selection  of  the  place  or  places  where  it  is  made  payable 
may  be  left  to  each  bank  respectively  ;  but  they  should  not  be 
compelled  by  law  to  make  it  payable  or  redeemable  at  more 
than  one  place.  In  order  to  obviate  this  difficulty,  the  country 
banks  of  the  State  of  New  York  have  been  enjoined,  by  a  late 
law,  to  redeem  their  notes  at  New  York  or  Albany,  at  a  certain 
fixed  discount.  This  is,  in  fact,  an  attempt  to  regulate  the  rate 
of  exchange  ;  which  is  not  a  proper  object  for  legislation,  and 
should  be  left  to  be  regulated  by  the  course  of  trade. 

Although    the  former   general    laws    prohibited    only  notes 


65 

Tinder  one  dollar,  a  subsequent  act  did,  for  a  short  time,  extend 
the  prohibition  to  all  notes  under  five  dollars.  This  is  in  itself  a 
proper  measure  ;  inasmuch  as  it  lessens  the  gross  amount  of 
issues ;  contributes,  as  far  as  it  goes,  in  making  the  wages  of 
labor  and  the  articles  of  consumption  which  are  daily  retailed, 
payable  only  in  specie ;  and  protects  the  poor  classes  of  the  com- 
munity against  the  contingency  of  a  depreciated  currency.  The 
prohibition  would  be  still  more  useful  and  efficient,  if  it  could  be 
extended  to  all  notes  under  twenty  dollars.  But  there  has  been 
a.  universal  demand  for  notes  under  five  dollars,  not  only  in  this, 
but  in  many  other  States;  and  the  issue  of  notes  of  that  descrip^ 
tion  has  again  been  permitted  by  a  law  of  this  State. 

It  is  believed  that  this  demand  may  be  principally  ascribed  to 
the  act  of  Congress,  which  has  rated  silver  under  its  true  value 
as  compared  with  gold.  It  seems  to  be  at  all  times  improper 
to  give  a  legal  relative  value  to  the  two  precious  metals,  differ- 
ent from  their  respective  market  price.  This  indeed  varies 
according  to  the  variations,  in  the  respective  demand  and  supply 
in  different  countries.  But  these  variations  are  small,  and  an 
average  ratio  may  be  assumed  sufficiently  correct  for  all  prac- 
tical purposes  during  a  number  of  years.  If  a  contrary  course 
be  pursued,  the  precious  metal  which  is  underrated  will  cease  to 
circulate  freely,  and  will  become  a  merchandise.  It  may  also 
be  observed,  as  regards  the  United  States,  that  gold  is  imported 
from  countries  where  it  is  not  produced,  and  can  therefore  be 
naturally  imported  only  when  exchanges  are  favorable  ;  whilst 
silver  is  imported  directly  from  Mexico  and  other  parts  of 
America,  of  which  it  is  the  natural  annual  product,  and  must,  as 
the  cotton  of  the  United  States,  be  necessarily  exported  annually, 
without  regard  to  price  or  rate  of  exchange.  Before  the  act  of* 
Congress  alluded  to,  the  silver  crop  of  Mexico  did  naturally 
flow  into  the  United  States ;  it  now  seeks  the  more  favorable 
market  of  England. 

But  the  immediate  effect  of  that  act  on  the  currency  of  the 
country,  has  been  to  give  to  the  silver,  necessary  for  change  or 
small  payments,  a  legal  nominal  value  less  than  its  actual  worth. 
It  is  believed  that  a  similar  experiment  had  never  before  been 
attempted  in  any  country.  Everywhere  else,  as  well  as  in 
America,  the  silver  coins,  daily  wanted  for  exchange,  had  been 


66 

made  either  to  correspond,  or  to  be  inferior  in  value,  to  gold 
coins,  or  to  silver  coins  of  a  higher  denomination.  The  necessa- 
ry result  is  to  drive  silver  from  circulation  ;  and  that  inconve- 
nience has  been  in  part  obviated,  only  by  permitting  small  foreign 
silver  coins,  though  depreciated  from  five  to  ten  per  cent.,  to 
pass  at  their  nominal  value.  Hence,  the  demand  for  notes  of 
one  and  two  dollars  was  so  urgent,  that  foreign  notes  of  that 
denomination  became  a  general  circulating  medium,  in  open 
violation  of  the  laws  of  this  State.  To  permit  its  banks  to  issue 
small  notes,  became  in  fact  a  measure  necessary,  in  order  to 
protect  the  community  against  a  worse  description  of  paper. 

There  seem  to  be  but  two  remedies  for  that  evil,  and  they 
depend  on  the  action  of  Congress.  The  first,  and,  it  is  believed,, 
the  most  proper,  would  be  to  alter  the  ratio  of  gold  to  silver, 
according  to  their  true  relative  value.  This  would  render  a 
new  gold  coinage  necessary,  and  might  cost  about  three  hun- 
dred thousand  dollars,  in  order  to  redeem  the  existing  coinage 
at  its  nominal  value.  The  other  mode  would  be,  to  adopt  the 
British  plan,  and  to  issue  as  tokens,  not  as  a  legal  tender,  but  as 
a  voluntary  currency,  a  silver  coinage  depreciated  by  alloy  five 
to  ten  per  cent.  In  that  case  the  coinage  must,  like  that  of  cop- 
per coins,  be  made  by  Government,  and  not  for  individuals  ;. 
and  it  is  necessary,  in  order  to  prevent  any  excess  beyond  the 
amount  actually  requisite  for  the  wants  of  the  community,  that 
the  Mint  should  at  all  times,  when  required,  redeem  such  coinage 
at  its  nominal  value. 

According  to  a  return  made  to  the  State's  Senate,  the 
amount  of  the  different  denominations  of  the  notes  issued  by  the 
several  banks  of  this  State  was  on  the  1st  of  January  1836,  as 
follows : 

Under  five  dollars $2,589,714 

Of  five          do 6,029,933 

Of  ten  and  twenty 5,687,004 

Of  fifty  and  one  hundred  3,131,175 

Of  above  one  hundred 3,451,100 

$2U,888,926 


The  country  banks  had  in  circulation  only  twenty-five  thou- 
sand dollars  in  notes  of  a  higher  denomination  than  one  hundred 
dollars. 


67 


FREE  BANKING. 

NOTWITHSTANDING  the  comparatively  favorable  result  of  the 
New  York  restrictive  system  of  chartered  banks,  it  has  been 
strenuously  assailed ;  and  the  attempt  has  been  made  to  sub- 
stitute for  it  that  which  has  been  called  free  banking. 

A  monopoly,  embracing  all  the  ordinary  banking  operations, 
had  in  this  State  been  created  in  favor  of  the  chartered  banks. 
By  an  act  passed  in  1818  and  confirmed,  as  included  in  the  first 
part  of  the  Revised  Statutes,  by  the  act  of  December  3d,  1827, 
it  was  enacted  that,  "  no  person,  association  of  persons  or  body 
corporate,  except  such  bodies  corporate  as  are  expressly  author- 
ised by  law,  (the  chartered  banks,)  shall  keep  any  office  for  the 
purpose  of  receiving  deposits,  or  discounting  notes  or  bills,  or 
issuing  any  evidences  of  debt,  to  be  loaned,  or  put  in  circulation 
as  money  ;  nor  shall  they  issue  any  bills  or  promissory  notes  or 
evidences  of  debt  as  private  bankers,  for  the  purpose  of  loaning 
them,  or  putting  them  in  circulation  as  money,  unless  thereto 
specially  authorised  by  law." 

So  much  of  that  law  as  forbade  any  person  or  association  of 
persons  to  keep  offices  for  the  purpose  of  receiving  deposits  or 
discounting  notes  or  bills,  was  repealed  by  a  law  passed  Februa- 
ry 4th,  1837  (q).  It  is  not  believed  that  any  such  prohibition, 
that  of  receiving  deposits  or  discounting  notes  or  bills,  has  ever 
existed  in  any  of  the  other  States,  or  in  any  other  country.  It 
was  denounced  by  the  writer  of  this  essay  more  than  ten  years 
ago.  And  it  must  be  well  understood,  that,  in  the  discussion 
respecting  free  banking,  the  only  question  at  issue  relates  ex- 
clusively to  the  power  of  substituting  bank  notes,  or  paper  mo- 
ney, for  a  specie  currency.  It  is  now  universally  agreed,  that 
with  that  single  exception,  every  other  species  of  banking  opera- 
tions, not  only  must  be  open  to  all,  but  requires  no  more  restric- 
tions than  any  other  species  of  commerce. 


(q)  But  any  corporation,  created  by  the  laws  of  any  other  State  or  country,  is 
still  forbidden  to  keep  any  office  for  the  purpose  of  receiving  deposits,  discounting 
notes  or  bills,  or  issuing  bank  notes. 


68 

The  term  "  free  banking,"  or,  to  speak  more  correctly,  free 
issuing  of  paper  money,  embraces  two  distinct  propositions ; 
first,  that  all  persons,  or  associations  of  persons,  should  be  permit- 
ted to  issue  paper  money  on  the  same  terms ;  secondly,  that  pa- 
per money  may  be  issued  by  all  persons,  or  associations,  without 
any  legislative  restrictions. 

The  exclusive  right  of  issuing  a  paper  currency,  granted  to 
the  chartered  banks,  was  a  monopoly ;  and  monopolies  can  never 
exist  without  violating,  to  a  certain  extent,  individual  rights. 
But  the  actual  evils  produced  by  that  particular  monopoly  have 
been  greatly  exaggerated,  and  should  be  reduced  to  their  true 
value. 

The  right  of  issuing  paper  money  as  currency,  like  that  of 
issuing  gold  and  silver  coins,  belongs  exclusively  to  the  nation, 
and  cannot  be  claimed  by  any  individuals.  If  it  be  insisted  that 
Government  has  no  right  to  part  with  it,  unless  it  be  granted  to 
all,  it  must  be  recollected  that  a  right  which  from  its  nature  can- 
not be  exercised  by  an  individual,  is  for  him  a  nullity.  The 
right  in  question  can  be  exercised  only  by  men  of  wealth,  or  by 
impostors.  The  poor  classes  cannot  enjoy  it :  the  right  claimed 
is  only,  that  all  wealthy  persons  should  be  placed  on  an  equal 
footing. 

The  monopoly  also  is  in  that  case  limited  to  the  formation  of 
the  banks.  The  favored  or  original  subscribers  expect  to  make 
a  profit  of  about  five  per  cent,  upon  their  shares ;  and  thus  far 
the  monopoly  extends.  From  the  moment  the  bank  has  been 
organised,  the  monopoly  ceases ;  every  person  may  participate 
and  become  an  associate  in  the  banking  business  who  can  pur- 
chase bank  shares ;  and  these,  being  generally  of  twenty-five  or 
fifty  dollars  each,  are  within  the  reach  of  almost  all  the  sober 
and  industrious  members  of  the  community. 

Competition  amongst  the  monopolists  had  also  rendered  the 
privilege  valueless.  There  is  not  a  single  city  bank,  chartered 
subsequent  to  the  year  1833,  the  stock  of  which  is  not  below 
par.  The  small  profit  anticipated  by  the  original  subscribers  has 
not  been  realised.  On  the  other  hand,  the  partiality  exhibited 
by  the  Legislature  in  granting  charters,  had  prevented  any  im- 
moderate increase  of  the  banking  capital  of  this  city,  and  that 
was  a  beneficial  result;  for  the  permission  of  issuing  paper 


money,  when  given  to  all,  has  a  tendency  to  increase  its  quan- 
tity, and  the  dangers  to  which  such  issues  are  always  liable. 

The  opposition  to  the  banking  system  was  originally,  in  this 
State,  as  much  against  paper  currency,  by  whomsoever  issued, 
as  against  the  monopoly  enjoyed  by  the  banks ;  and  the  pre- 
ceding observations  have  been  introduced  principally  because, 
in  pursuing  too  eagerly  that  which  was  almost  a  shadow,  the 
opponents  seem  to  have  lost  sight  of  the  principal  object,  and  to 
have  remained  satisfied  that  there  should  be  a  dangerous  excess 
of  paper  money,  provided  every  body  should  be  permitted  to 
issue  it. 

But,  even  if  it  should  be  satisfactorily  proved  that  the  mono- 
poly of  chartered  banks  has  been  attended  with  favorable  results 
as  regards  the  soundness  of  the  currency,  the  dangers  of  special, 
substituted  for  general,  legislation  are  a  paramount  objection. 
The  very  essence  of  law  consists  in  its  being  equal  and  gene- 
ral ;  and,  although  there  are  some  necessary  exceptions,  special 
legislation  should  never  be  resorted  to  whenever  it  can  possibly 
be  avoided. 

The  danger  of  special  laws  is  greatest  when  they  relate  to 
monied  institutions,  or  to  special  appropriations  of  money.  It  is 
generally  believed,  that  the  original  charters  of  some  of  the  city 
banks  were,  about  thirty  years  ago,  obtained  by  direct  corrup- 
tion. Although,  in  latter  years,  nothing  more  has  been  alleged 
against  the  Legislature  than  the  influence  of  party  spirit,  or 
yielding  to  personal  solicitations,  yet  the  danger,  and  even  the 
suspicion,  of  being  controlled  by  more  degrading  motives  should 
be  avoided.  The  fatal  consequences  of  the  baneful  influence  of 
the  banking  interest  in  other  States  are  but  too  well  known.  In 
the  case  now  under  consideration,  it  is  believed  that  a  general 
law  maybe  substituted  for  special  legislation.  The  principal 
object  will  be  obtained,  provided  the  law  be  equal,  that  is  to  say, 
provided  that  all  may  be  permitted  to  issue  a  paper  currency  on 
the  same  terms.  But  it  is  at  the  same  time  the  firm  conviction 
of  the  writer,  that  it  is  necessary,  in  order  to  secure  a  sound 
currency,  that  restrictions  should  be  imposed  upon  all  those  who 
do  issue  the  paper. 

The  proposition,  that  a  paper  currency  may  be  issued  by  all, 
without  any  legislative  restrictions,  appears  to  be  founded  on  an 


70 

erroneous  application  of  the  principle  of  free  trade.  Free  com- 
petition, in  producing  or  dealing  in  any  commodity,  causes  a  re- 
duction in  the  cost,  or  an  improvement  in  the  quality  of  the  com- 
modity. In  money  dealings,  the  same  competition  furnishes  the 
use  of  money,  and  procures  discounts  of  negotiable  paper  on  the 
cheapest  possible  terms.  But,  issuing  a  paper  currency  is  not 
dealing  in  money,  but  making  money.  The  object,  with  respect 
to  such  currency,  is  not  to  produce  a  commodity  cheaper,  or 
varying  in  value,  but,  on  the  contrary,  to  furnish  a  substitute 
perfectly  equal  to  gold  or  silver,  and  therefore  of  comparatively 
invariable  value.  Competition  cannot  make  a  cheaper  curren- 
cy, unless  by  making  it  worse  than  the  legal  coin  of  which  it  is 
the  representative.  In  that  case,  it  becomes  analogous  to  a  de- 
based coin ;  and,  if  permitted  to  circulate,  the  bad  generally 
drives  away  the  faithful  currency. 

The  general  currency  is  always  the  standard  of  value  of  the 
country.  To  fix  that  standard,  is  as  important  and  necessary 
as  to  fix  the  standard  of  weights  and  measures.  Both  are  pre- 
liminary enactments  which  regulate  and  govern  the  freest  possi- 
ble trade.  Gold  and  silver  are  the  only  standard  of  value  recog- 
nised by  the  constitution.  The  power  to  regulate  the  value  of 
gold  and  silver  coins,  as  well  as  that  of  fixing  the  standard  of 
weights  and  measures,  is  vested  in  the  General  Government.  If 
;any  State  Legislature  permit  the  substitution  of  a  paper  for  a 
gold  or  silver  currency,  it  is  bound  so  to  regulate  that  curren- 
cy, that  it  shall  not  alter  the  constitutional  standard  of  value. 
The  unrestricted  right  of  coining  gold  or  silver  might  be  claimed 
with  as  much  propriety  as  that  of  coining  a  paper  currency. 

No  restrictions  should  be  imposed  on  the  acts  of  individuals, 
or  associations,  but  such  as  are  necessary  to  secure  the  rights  of 
others,  or  to  protect  the  whole  community.  But  thus  far  the 
restrictions  are  proper  and  necessary.  It  will  not  be  denied,  that 
the  evils  of  a  depreciated  currency,  and  those  resulting  from  ei- 
ther the  failure  or  the  suspension  of  payment  of  those  who  issue 
a  paper  currency,  universally  fall  most  heavily  on  the  poorer 
classes,  and  the  most  ignorant  members  of  society.  Restrictive 
laws  are  necessary  for  their  immediate  protection,  as  well  as  in 
order  to  guard  against  the  general  evils  of  an  irredeemable 
currency. 


71 

It  has  been  asserted,  but  not  a  single  argument  has  been  ad- 
duced in  support  of  the  assertion,  that  an  indefinite  number  of 
unrestricted  banking  associations,  or  private  bankers,  would  se- 
cure the  community  against  the  dangers  of  depreciation,  suspen- 
sion, or  failure.  If  we  appeal  to  experience,  we  find  that  the  at- 
tempt to  introduce  that  system  in  Michigan  has  been  a  complete 
failure,  and  has  been  the  source  of  innumerable  frauds.  In  some 
States,  banks  have  been  so  unrestricted,  and  charters  so  liberally 
granted,  that  the  result  differed  but  little  from  complete  free  bank- 
ing. Indeed,  what  more  unrestrained  system  can  be  devised,  than 
one  which  has  produced  nine  hundred  banks  and  branches,  and, 
under  which,  all  the  restrictive  laws  are  suspended  in  one  half  of 
the  States.  The  evils  under  which  we  labor  are  principally  due 
to  the  want  of  proper  restriction  upon  the  banks.  The  result 
has  been  favorable  in  proportion  as  the  restraints  have  been  most 
efficient. 

Abroad,  the  privilege  of  issuing  bank  notes  or  private  nego- 
tiable paper  as  currency,  has  nowhere,  except  in  the  British 
dominions,  been  considered  as  belonging  of  right  to  private  in- 
dividuals, or  to  joint  stock  associations.  The  experiment  of  free 
banking  has  been  made  only  in  Great  Britain.  With  respect  to 
the  country  bankers,  the  experiment  may  be  considered  as  a 
failure.  The  number  of  bankruptcies  and  the  amount  of  losses 
have  been  as  great  as  under  the  former  loose  system  of  the 
banks  of  the  several  States  ;  and,  in  proportion,  far  greater  than 
in  New  York,  under  its  better  regulated  system  (r).  The 
establishment  of  joint  stock  banking  associations  in  England  is 
of  too  recent  a  date,  to  form  any  definitive  opinion  of  their 
eventual  success.  As  yet,  the  example  of  the  banks  of  Scotland 
can  alone  be  appealed  to  in  favor  of  free  banking. 

These  banks  cannot  be  compared  to  those  of  our  large  cities. 
They  are,  in  fact,  subordinate  to  the  Bank  of  England  ;  dependent 
for  the  payment  of  their  balances  on  their  London  funds,  hardly 
ever  called  on  for  specie,  and  suspending  their  specie  payments 


(r)  The  commissions  of  bankruptcy  in  England  against  bankers  amounted  to 
ninety-two  during  the  years  1814-16  ;  to  sixty-five  during  the  year  1825  and  the' 
three  first  months  of  1826*  The  annual  average  was  eight,  from  1817  to  1824 
inclusive. 


72 

whenever  the  Bank  of  England  does  suspend.  But  there  must 
be  a  difference  of  habits  between  Scotland  and  even  England, 
such  as  to  have  induced  Parliament  not  to  include  the  first  in 
the  general  regulation  which  prohibits  the  issue  of  notes  of  a 
less  denomination  than  five  pounds.  The  difference  is  still 
greater  between  Scotland  and  America. 

The  spirit  of  enterprise  will  always  be  proportionate  to  its 
field,  to  the  prospects  open  to  it  by  the  extent,  geographical 
situation,  and  other  circumstances  of  the  country.  The  Scotch 
are  an  enterprising  people  ;  but  the  great  and  indeed  extraordi- 
nary progress  they  have  made  in  agriculture,  manufactures  and 
commerce,  has  been  gradual  and  regular,  obtained  by  perse- 
vering industry,  and  accompanied  by  a  degree  of  prudent  caution 
and  of  frugality  altogether  unknown  in  America.  The  popula- 
tion of  Scotland  is  so  far  stationary,  that  it  consists  almost  ex- 
clusively of  natives  of  the  land.  The  property,  standing  and 
character  of  every  member  of  the  commercial  community  are 
generally  known.  All  persons  may  nominally  establish  banks  ; 
but  their  notes  could  not  circulate  unless  received  by  the  old 
banks  ;  and  these  perfectly  check  each  other  by  the  regular 
payment  of  their  respective  balances.  There  is  another  ingre- 
dient, belonging  to  all  the  free  banks  of  Great  Britain,  which 
will  be  immediately  adverted  to,  and  which  would,  it  is  believed, 
present  an  insurmountable  obstacle  to  the  introduction  of  unre- 
stricted banks  in  America. 

It  would  not  be  fair  to  draw  general  inferences  against  free 
banking,  from  the  consequences  of  the  defective  system  of  New 
York.  It  will  be  perceived  that  the  preceding  observations 
have  no  reference  to  that  system,  and  apply  generally  to  the 
most  perfect  plan  which  might  be  devised.  The  provisions  of 
the  free  banking  act  of  New  York  will  now  be  examined. 

That  law  was  passed  in  April  1838,  at  a  time  when  the  gene- 
ral prejudice  against  chartered  banks,  growing  out  of  the  war- 
fare waged  against  them,  had  received  additional  strength  from 
the  suspension  of  specie  payments,  and  when  their  monopoly 
was  generally  deprecated.  Unfortunately  no  substitute,  or  ra- 
tional plan  of  free  banking,  had  been  prepared  by  its  advocates. 
The  act  bears  internal  evidence,  that  it  was  prepared  by  specu- 


73 

lators,  who  took  advantage  of  the  opportunity  for  procuring  a 
law  that  would  suit  their  purpose. 

There  was,  however,  an  intrinsic  difficulty  in  passing  a  law 
founded  on  correct  principles.  The  condition  alluded  to,  as 
common  to  all  private  bankers  who  have  ever  been  permitted 
to  issue  a  paper  currency,  and  to  all  the  free  banking  associa- 
tions of  the  same  description  which  have  ever  existed,  is  the 
personal  responsibility,  to  the  whole  extent  of  their  fortune,  of 
the  private  bankers  and  of  all  the  shareholders  in  the  banking 
associations.  That  responsibility  is  and  has  always  been  deem- 
ed essentially  necessary.  But  whilst  there  were  in  existence 
ninety  chartered  banks  spread  over  the  whole  State,  whose  share- 
holders were  not  subject  to  that  responsibility,  it  would  have 
been  a  mockery  to  authorise  nominally  free  banks,  with  that  re- 
sponsibility attached  to  the  associates.  We  may  go  farther,  and 
say  that  such  a  plan  would  not  be  practicable,  even  if  banks  of 
a  different  description  had  not  existed. 

That  degree  of  reciprocal  confidence  does  not  and  cannot 
exist  here,  which  would  induce  men  of  property  to  risk  the 
whole  of  it,  for  the  sake  of  obtaining  the  interest,  or  very  little 
more  than  the  ordinary  interest,  on  their  share  in  the  association. 
That  which  is  actually  the  fact  in  Scotland,  is  not  practicable 
here.  The  laws,  habits,  and  public  opinion  are  not  the  same. 
American  merchants,  indeed,  give  large,  and  often  indiscreet 
credits,  but  always  in  the  expectation  of  a  large  profit.  -The 
shareholders  of  the  Bank  of  Commerce,  consisting  of  some  of  the 
most  wealthy  and  respectable  merchants  and  other  men  of  capi- 
tal of  this  city,  aware  of  the  greater  confidence  placed  in  char- 
tered banks  than  in  the  new  banking  associations,  have  autho- 
rised the  directors  to  accept  a  charter,  if  it  could  be  obtained  ; 
but  with  the  express  condition,  that  it  should  not  impose  per- 
sonal responsibility  on  the  shareholders.  No  stronger  proof 
can  be  given  of  the  insurmountable  reluctance  to  such  a  pro- 
vision. 

It  is  evident  that  some  other  guarantee  is  necessary,  when 
there  is  no  personal  responsibility.  That  guarantee  has  hereto- 
fore always  been  that  of  the  actual  payment  in  specie  of  a 
capital  fixed  by  law.  This  is  the  substitute  which  has  always 
been  required  from  the  chartered  banks,  and  which  should  have 
10 


74 

been  the  essential  condition  imposed  on  the  contemplated  bank- 
ing associations.  The  omission  of  any  efficient  provision  for 
that  purpose  is  the  fundamental  error  of  the  law.  It  declares, 
indeed,  that  the  capital  shall  not  be  less  than  one  hundred  thou- 
sand dollars,  but  does  not  specify  of  what  that  capital  shall  con- 
sist, nor  when  or  how  it  shall  be  paid.  The  principal  provisions 
of  the  act  are  the  following. 

The  persons  associated  must  file,  in  the  office  of  the  Secretary 
of  State,  a  certificate  specifying  the  name,  place,  duration,  and 
capital  of  the  association  ;  and  they  may  provide,  by  their  arti- 
cles of  association,  for  an  increase  of  their  capital. 

The  banking  business,  which  the  associations  may  carry  on, 
is  defined  nearly  in  the  same  words  used  in  the  charters  of  the 
old  banks  ;  and  they  are  in  the  same  manner  forbidden  to  hold 
real  estate  otherwise  than  as  is  provided  in  the  same  charters. 

No  association  shall,  for  the  space  of  twenty  days,  have  less 
than  twelve  and  a  half  per  cent,  in  specie  on  the  amount  of  its 
circulation;  nor,  if  its  capital  should  be  reduced,  make  dividends 
until  the  deficit  shall  have  been  made  good  ;  nor  issue  bank 
notes  of  a  denomination  less  than  one  thousand  dollars,  payable 
at  any  other  place  than  that  where  its  business  is  carried  on. 
By  a  subsequent  amendment  to  the  law,  the  associations  are  for- 
bidden to  issue  post  notes;  and  the  provision  respecting  specie 
is  repealed. 

The  associations  shall  pay  damages  at  the  rate  of  fourteen  per 
cent,  per  annum,  for  non-payment  only  of  every  note  in  circu- 
lation, the  payment  of  which  shall  have  been  demanded  and 
refused. 

The  bank  notes,  which  any  association  may  issue,  must  be 
prepared  and  countersigned  by  the  Comptroller  of  the  State ; 
and  he  is  not  to  deliver  to  any  association,  notes  to  a  greater 
amount  than  that  of  State  stocks,  or  of  mortgages,  previously 
deposited  with  him  by  the  associations  respectively.  The  stocks, 
&c.  thus  deposited  are  pledged  for  securing  the  payment  of  the 
notes  put  in  circulation,  and  shall  be  sold  accordingly,  whenever 
required  for  that  purpose.  By  a  subsequent  law,  mortgages  and 
the  stocks  of  the  State  alone  are  receivable. 

Semi-annual  statements  of  the  affairs  of  every  association, 


75 

verified  by  the  oath  of  the  president  or  cashier,  must  be  trans- 
mitted to  the  Comptroller  and  published  by  him. 

Upon  the  application  of  creditors  or  shareholders,  the  Chan- 
cellor may  order  a  strict  examination  to  be  made  of  all  the 
affairs  of  any  association ;  and  the  result  of  such  examination, 
together  with  his  opinion  thereon,  shall  be  published  in  such 
manner  as  he  may  direct. 

If  any  association  shall  neglect  to  transmit  to  the  Comptroller 
the  statements  required,  or  if  it  shall  have  made  dividends  in 
violation  of  the  provision  above  stated,  or  if  it  shall  violate  any 
of  the  provisions  of  the  act,  such  association  may  be  proceeded 
against  and  dissolved  by  the  Court  of  Chancery. 

The  shares  of  the  associations  shall  be  transferable  on  their 
books ;  and  every  person,  to  whom  such  transfer  shall  be  made, 
shall  succeed  to  the  rights  and  liabilities  of  prior  shareholders. 
No  shareholder  shall  be  liable  in  his  individual  capacity  for  any 
contract  or  debt  of  the  association,  unless  declared  to  be  so  liable 
by  the  articles  of  the  association ;  and  no  association  shall  be 
dissolved  by  the  death,  or  insanity,  of  any  of  the  shareholders. 

All  contracts  made  and  notes  issued  by  any  such  association 
shall  be  signed  by  the  president,  or  vice-president,  and  cashier. 
All  suits,  actions,  and  proceedings  brought  or  prosecuted,  in  be- 
half of  such  association,  may  be  brought  or  prosecuted  in  the 
name  of  the  president ;  and  all  persons,  having  demands  against 
the  association,  may  maintain  actions  against  the  president. 
Such  suits  or  actions  shall  not,  in  either  case,  abate  by  reason  of 
the  death,  resignation,  or  removal  from  office  of  such  president, 
but  may  be  continued  and  prosecuted  to  judgment,  in  the  name 
of,  or  against  his  successor  in  office,  who  shall  exercise  the 
powers  and  enjoy  the  rights  of  his  predecessor. 

All  judgments  and  decrees  rendered  against  such  president, 
for  any  liability  of  the  association,  shall  be  enforced  only  against 
the  joint  property  of  the  association.  No  change  shall  be  made 
in  the  articles  of  association,  by  which  the  rights,  remedies,  or 
security  of  its  existing  creditors  shall  be  weakened  or  impaired. 

The  original  certificate  filed  with  the  Comptroller  affords  no 
security  that  the  capital  has  been  paid.  It  does  not  appear  to 
require  the  sanction  of  an  oath;  and  there  is  no  penalty  for 
making  a  false  certificate.  There  is  no  provision,  declaring  of 


76 

what  the  capital  shall  consist,  or  in  what  manner  it  shall  be  paid. 
The  only  provision,  in  that  respect,  is  the  obligation  to  deposit 
the  stocks  or  mortgages,  equal  in  amount  to  that  of  the  bank 
notes  issued  by  the  association.  Beyond  that  deposit,  which 
by  the  supplementary  law  must  amount  to  one  hundred  thou- 
sand dollars,  no  provision  whatever  is  made  for  the  residue 
of  the  capital.  This  may  be  nominal  or  real,  consisting,  at  the 
will  of  the  parties,  of  specie,  mortgages  or  stocks  of  any  descrip- 
tion, of  nominal  debts,  or  of  nothing  at  all.  There  is  no  provi- 
sion to  prevent  the  shareholders  from  paying  their  shares  by 
giving  their  own  notes.  Even  the  minimum  of  securities  de- 
posited with  the  Comptroller,  and  intended  as  a  guarantee  for  the 
payments  of  the  issues,  was  not  determined  by  the  original  law. 
An  association  depositing  ten  thousand  or  one  thousand  dollars,  in 
stock  of  the  most  equivocal  character,  and  announcing  a  capital 
of  some  millions  of  dollars  that  did  not  exist,  was  permitted  to  be- 
gin its  operations.  Heretofore,  it  had  been  deemed  essential  that 
the  whole  capital  should  be  paid  in  specie.  An  honest  institu- 
tion, with  a  capital  consisting  of  nothing  but  mortgages,  has 
nothing  to  lend,  and  must  necessarily  begin  its  operations  by 
contracting  a  debt.  And  those  mortgages  afford  no  available 
resources  to  meet  the  liabilities  to  which  a  banking  association 
must  necessarily  be  liable. 

The  dangers  of  an  excessive  capital,  concentrated  in  associa- 
tions invested  with  the  attributes  and  privileges  of  a  corporate 
body,  are  undeniable,  and  have  been  lately  sufficiently  exempli- 
fied. That  danger  is  greatly  increased,  if  the  duration  of  such 
associations  is  indefinite.  This  had  always  been  attended  to. 
No  bank  had  ever  been  chartered  in  this  State  with  a  capital 
exceeding  two  millions  of  dollars ;  and  none  could  either  increase 
or  reduce  it  without  the  consent  of  the  Legislature.  With  the 
exception  of  two  institutions,  incorporated  for  other  objects,  the 
duration  of  a  bank  did  not  exceed  twenty-five  years.  No  pro- 
vision was  made  in  either  respect  by  the  free  banking  law ;  and 
as  a  specimen  of  the  expectations  of  the  first  projectors,  we  an- 
nex a  statement  of  the  applications  made  during  the  first  six 
months  after  the  law  had  gone  into  operation. 


77 


Name  and  Style  of  Company. 

Where  located. 

Capital 
subscribed. 

May  be  in- 
creased to 

Chart- 
ered for 

Dollars. 

Dollars. 

Years 

Bank  of  Western  New  York  . 

New  York  city 

500,000 

500,000 

100 

Bank  of  Western  New  York  . 

Rochester 

180,000 

180,000 

100 

North  American  Trust  &  Banking  Co. 

New  York  city 

2,000,000 

50,000,000 

463 

Bank  of  the  United  States  in  New  York 

New  York  city 

200,000 

50,000,000 

62 

Mechanics'  Banking  Association    . 

New  York  city 

128,175 

10,000,000 

99 

Staten  Island  Bank 

PortRichmond 

100,000 

5,000,000 

100 

Erie  County  Bank  .... 

Buffalo 

100,000 

100,000 

112 

Lockport  Bank  and  Trust  Company 

Lockport 

500,000 

2,000,000 

262 

Bank  of  Central  New  York    . 

Utica 

100,000 

2,000,000 

4050 

Bank  of  Syracuse  .... 

Syracuse 

100,000 

1,000,000 

500 

American  Exchange  Bank 

New  York  city 

500,000 

50,000,000 

100 

Farmers'  Bank  of  Orleans 

Gaines 

200,000 

500,000 

25 

St.  Lawrence  Bank 

Ogdensburgh 

100,000 

2,000,000 

100 

Merchants'  and  Farmers'  Bank 

Ithaca 

150,000 

2,000,000 

201 

Willoughby  Bank  . 
Stuyvesant  Banking  Company 
New-  York  Banking  Company 
EastRiverBank  of  theCity  of  New  York 
Chelsea  Bank.         .         .        .   '  <  •'.  •  •• 

Brooklyn 
New  York  city 
New  York  city 
New  York  city 
New  York  city 

100,000 
300,000 
1,000,000 
100,000 
1,000,000 

100,000 
2,000,000 
20,000,000 
25,000,000 
10,000,000 

100 
199 
100 
152 
150 

Farmers'  Bank  of  Ovid  . 

Ovid 

100,000 

1,000,000 

112 

Tenth  Ward  Bank 

New  York  city 

100,000 

10,000,000 

462 

Bank  of  Waterville 

Waterville 

100,000 

1,000,000 

1000 

Millers'  Bank  of  New  York    . 

Clyde 

300,000 

1,000,000 

1000 

Albany  Exchange  Bank. 

Albany 

100,000 

10,000,000 

602 

Exchange  Bank  of  Genesee    . 

Alexander 

100,000 

500  000 

162 

Farmers  &MechanicsBank  of  Genesee 

Batavia 

100,000 

1,000,000 

162 

Genesee  County  Bank    . 

LeRoy 

100,000 

1,000,000 

161 

United  States  Bank  of  Buffalo 

Buffalo 

100,000 

5,000,000 

200 

Bank  of  Kinderhook 

Kinderhook 

125,000 

300  000 

50 

Merchants'  Exchange  Bank  of  Buffalo 

Buffalo 

200,000 

5,000,000 

100 

Le  Roy  Bank  of  Genesee 

Le  Roy 

100,000 

1,000,000 

161 

Mechanics'  and  Farmers'  Bank 

Ithaca 

100,000 

1,000,000 

362 

Genesee  Central  Bank    . 

Attica 

100,000 

1,000,000 

300 

WoolGrowers'Bank  oftheState  of  NY. 

New  York  city 

100,000 

2,000,000 

100 

Bank  of  Lowville    .... 

Lowville 

100,000 

500,000 

463 

Erie  C  anal  Trust  &B  anking  C  ompany 
Hudson  River  Bank 

Buffalo 
New  York  city 

200,000 
100,000 

10,000,000 
20,000,000 

300 
150 

Powell  Bank  .         .        .        .        . 

Newburgh 

130,000 

1,000,000 

100 

Patriot  Bank  of  Genesee.        .        .   " 

Batavia 

100,000 

1,000,000 

161 

Bank  of  Brockport  .         .         .        . 

Brockport 

150,000 

1,000,000 

160 

Ithaca  Bank    .         .         .        .        . 

Ithaca 

250,000 

1,000,000 

662 

Deposite  Bank  of  Albany 

Albany 

100,000 

5,000,000 

161 

Bank  ofWaterford 

Waterford 

100,000 

5,000,000 

161 

Silver  Lake  Bank  of  Genesee  . 

Perry  Village 

100,000 

1,000,000 

161 

Bank  of  the  City  of  New  York 

New  York  city 

100,000 

50,000,000 

500 

Fort  Plain  Bank     .... 

Fort  Plain 

100,000 

500,000 

161 

Troy  Exchange  Bank     . 
United  StatesTrust&BankingCompy 
Railroad  Bank  of  Coxsackie   . 

Troy 
New  York  city 
Coxsackie 

100,000 
1,000,000 
100,000 

10,000,000 
50,000,000 
1,000,000 

661 
500 
161 

James  Bank   

Jamesville* 

106,000 

1,000,000 

661 

North  Bank    

New  York  city 

100,000 

10,000,000 

462 

Bank  of  Warsaw    . 

Warsaw 

100,000 

1,000,000 

161 

Bank  of  North  America  . 

New  York  city 

100,000 

50,000,000 

200 

State  Stock  Security  Bank 

New  York  city 

*  Saratoga  co. 

12,319,175 

487,680,000 

78 

It  is  sufficiently  apparent,  from  the  provisions  of  the  act,  that 
the  free  banking  associations,  though  not  designated  by  the  ob- 
noxious name  of  corporations,  and  though  organised  under  a 
general  law,  and  not  by  a  special  charter,  have  all  the  essential 
and  necessary  attributes  of  a  corporation.  From  the  moment 
they  are  organised,  they  are  in  character  assimilated  with  the 
chartered  banks.  They  are,  as  joint  stock  companies,  governed 
in  the  same  manner,  and  with  the  same  defects  inherent  to  such 
companies  which  have  already  been  mentioned.  They  have 
the  same  power  and  privileges,  are  liable  to  the  same  abuses, 
and  differ  only  in  name,  and  in  that  they  are  exempted  from  the 
restrictions  imposed  on  the  chartered  banks  (rr). 

It  must  be  kept  in  mind,  that  all  the  arguments  in  favor  of 
banking,  not  simply  free  to  all,  but  free  also  of  any  restriction, 
are  founded  on  the  presumption  that  the  character  and  personal 
responsibility  of  the  banker  or  bankers  afford  a  sufficient  security, 
and  preferable,  as  is  asserted,  to  any  derived  from  restrictions. 
It  is  evident  that,  when  the  shareholders  are  not  personally 
responsible,  as  was  the  case  in  every  system  of  free  banking 
ever  attempted  anywhere  prior  to  the  New  York  experiment, 
some  other  permanent  guarantee,  and  not  depending  exclusively 
on  the  character  of  directors,  who  are  not  always  the  same, 
must  be  provided.  It  is  on  that  account  that  precautions  are 
necessary,  not  only  for  the  payment,  but  also  for  the  preservation 
of  the  capital,  which  is  the  guarantee  substituted  for  that  respon- 
sibility. This  is,  in  fact,  the  object  of  the  restrictions  imposed  on 
the  chartered  banks. 


(rr)  The  free  banking  law  is,  at  least,  so  generally  understood.  The  new  asso- 
ciations have,  by  the  judgment  of  the  Court  for  the  Correction  of  Errors,  been  de- 
clared, not  to  be  bodies  politic  or  corporate  within  the  spirit  and  meaning  of  the 
constitution.  The  decision  thus  expressed  might  seem  to  leave  it  doubtful  whether 
they  were  not,  however,  monied  corporations  within  the  spirit  and  meaning  of  the 
Revised  Statutes :  in  which  case,  they  would  be  subject  to  all  the  general  laws  re- 
ppecting  such  corporations.  But  it  was  provided  by  the  act  of  14th  May  1840,  that 
no  such  association  should  issue  notes  not  payable  on  demand  and  without  interest, 
and  that  all  those  associations  should  be  subject  to  the  inspection  of  the  bank  com- 
missioners ;  which  would  have  been  unnecessary  had  those  institutions  been  con. 
sidered  as  monied  corporations;  since  all  of  those  having  banking  powers  were 
made  subject  to  both  those  provisions  by  the  Safety  Fund  act. 


79 

The  original  free  banking  act  did  not  forbid  the  issuing  of 
post  notes  ;  it  has  in  that  respect  been  amended ;  but  the  law, 
as  it  now  stands,  contains  no  provision  forbidding  the  dealing  in 
stocks,  nor  in  relation  to  the  amount  either  of  loans,  discounts 
and  other  investments,  or  of  the  debts,  which  the  new  banking 
associations  may  contract.  They  are  authorised  to  loan  money 
on  real  security,  and  are  generally,  with  respect  to  their  ope- 
rations, left  still  more  free  than  the  United  States  Bank  of  Penn- 
sylvania. Those  restrictions  might,  by  the  ardent  friends  of 
free  banking,  be  deemed  useless,  if  the  shareholders  were 
personally  responsible ;  they  become  necessary  when  there  is 
no  such  responsibility.  There  are  other  provisions  now  in  force 
with  respect  to  chartered  banks,  the  propriety  of  which,  in 
reference  to  the  new  associations,  cannot,  it  is  believed,  be 
disputed. 

Although  the  law  was  passed  during  the  general  suspension 
of  the  banks,  no  efficient  provision  is  found  in  it  to  guard  against 
the  recurrence  of  the  same  catastrophe.  The  only  penalty,  in 
that  respect,  is  the  obligation  to  pay  damages,  at  the  rate  of 
fourteen  per  cent,  per  year  on  bank  notes,  the  payment  of  which 
is  demanded  and  refused.  And  experience  has  proved  that  a 
similar  provision  was,  in  case  of  a  general  suspension,  almost 
nugatory.  But  there  is  none  in  the  act,  either  for  constraining 
the  associations,  which  shall  have  suspended  their  payments,  to 
discontinue  their  operations,  nor  for  a  dissolution,  as  the  neces- 
sary consequence  of  not  resuming  specie  payments  within  a 
year.  The  Chancellor  is  authorised  to  dissolve  the  institution, 
only  in  case  it  shall  have  violated  some  of  the  provisions  of  the 
act ;  that  is  to  say,  in  case  it  should  not  have  the  amount  of 
specie  required,  or  should  have  made  dividends  with  a  reduced 
capital,  or  have  failed  in  transmitting  the  semi-annual  statements 
to  the  Comptroller  (s).  But,  under  the  law,  as  it  now  stands, 
there  is  nothing  to  prevent  associations,  which  have  suspended 
their  payments,  from  continuing  their  operations  during  an  un- 
limited term  of  years. 


(«)  Even  those  statements  are  complex,  partly  unintelligible,  and  differently 
understood  and  prepared  by  the  several  associations. 


80 

The  only  object  which  seems  to  have  attracted  the  attention 
of  the  Legislature,  is,  not  the  danger  of  a  suspension,  but  the 
ultimate  redemption  of  the  notes  put  in  circulation.  The  pro- 
vision in  reference  to  that  object  is  the  only  condition,  not 
imposed  on  the  chartered  banks,  to  which  the  new  associations 
are  subject.  They  must  deposit  with  the  Comptroller  certain 
securities,  equal  in  amount  to  that  of  the  bank  notes  which  they 
are  permitted  to  issue. 

This  provision,  even  as  now  amended,  secures  the  ulti- 
mate redemption  of  about  nine-tenths  of  the  circulation  ;  it  is 
no  protection  against  the  immediate  depreciation  of  the  notes 
whenever  the  banking  association  fails  or  suspends.  Those 
only  who  can  wait  realize  that  portion  which  is  ultimately  re- 
covered by  the  sale  of  the  securities.  In  the  meanwhile,  the 
notes  dispersed  in  very  small  sums,  amongst  a  number  of 
persons,  generally  those  who  are  least  able  to  discriminate,  are 
sold  at  a  lower  price  than  even  their  actual  worth  ;  and  the  loss 
falls  on  those  least  able  to  bear  it  and  who  require  protection. 
It  is  the  belief  of  the  writer,  that  this  provision  is  in  fact  injurious  ; 
inasmuch  as  it  gives  an  unmerited  credit  to  institutions  which  do 
not  deserve  it,  and  inspires  a  general  unfounded  confidence,  on 
the  part  of  those  who  from  their  situation  cannot  have  the  in- 
formation necessary  to  discriminate  between  a  good  and  a 
doubtful  bank  note  (t).  On  one  point,  at  least,  there  can  be  but 
one  opinion :  nominal  restrictions  or  provisions  which  do  not 
fulfil  the  object  for  which  they  were  intended,  ought  to  be 
repealed. 

The  consequences  of  the  act  have  been  nearly  such  as  might 
have  been  expected.  Several  respectable  associations  have 
been  formed  under  the  law,  with  the  intention  of  carrying  on 
honestly  legitimate  banking  business.  Three  such  are  now  in 
operation  in  this  city,  one  of  which  has  committed  the  error 
of  having  part  of  its  small  capital  paid  in  mortgages.  All 
three  carry  on  their  business,  and  are  governed  on  the  same 


(t)  It  would  be  extremely  desirable,  that  the  people  might  be  persuaded  to  adopt 
as  a  general  rule,  never  to  receive  or  offer  in  payment  a  bank  note  not  payable  at 
the  place  where  it  is  offered. 


81 

principles  and  in  the  same  manner,  as  the  chartered  banks. 
It  may  be  added,  that  they  have  also  been  formed  in  the 
same  manner.  A  number  of  persons  unite  themselves,  in 
order  to  establish  a  bank,  take  a  part  of  the  capital,  invite  after- 
wards others  to  unite  with  them,  and  generally  preserve  the 
control  of  the  bank.  Whether  it  be  the  chartered  Bank  of  the 
State  of  New  York,  or  the  free  Bank  of  Commerce,  the  process 
in  the  formation  of  both  is  the  same.  The  only  difference  in 
that  respect  is,  that  the  founders  of  the  one  were  obliged  to 
obtain  the  special  leave  of  the  Legislature,  and  that  those  of  the 
other  were  enabled  to  make  their  arrangements  under  the 
auspices  of  a  general  law.  There  can  be  no  doubt  that,  under 
such  a  law,  if  new,  real  and  honest  banks  are  wanted,  they  will 
be  formed,  and  that,  when  they  are  found  not  to  be  profitable, 
there  will  be  no  desire  to  increase  their  number.  Under  the 
present  imperfect  system  of  free  banking,  there  is,  however,  this 
difference  between  the  two  species,  that  the  confidence  placed 
in  the  new  associations  rests  exclusively  on  the  personal  stand- 
ing and  character  of  those  who  control  them  ;  whilst  that  which 
is  placed  in  the  chartered  banks  is  founded,  not  only  on  the 
personal  character  of  the  directors  and  officers,  but  also  on  the 
guarantee  offered f by  the  restraints  imposed  on  them  by  law. 
Limited  confidence  only  can  be  placed  in  joint  stock  companies, 
which  are  not  laid  under  efficient  restrictions,  and  subject  to 
strict  inspection  and  examination.  The  character  of  the  presi- 
dent and  directors  of  the  Bank  of  the  United  States  was  as 
irreproachable,  as  that  of  the  directors  and  officers  of  any  of  the 
banking  institutions  of  New  York. 

But  if  some  banks,  formed  and  governed  on  sound  principles, 
have  been  established  under  the  free  banking  law,  it  may  also 
give  birth  to  associations  of  a  different  character.  Some  have 
their  origin  in  ignorance,  others  in  the  sanguine  expectations  of 
bold  speculators ;  occasionally  they  may  be  founded  in  fraud. 
One  of  the  most  common  errors  has  been  the  belief,  that  an  as- 
sociation, the  capital  of  which  consisted  exclusively  of  mortgages, 
could  carry  on  profitably  ordinary  banking  operations.  It  is 
clear,  that  such  an  institution  has  nothing  to  lend  but  the  notes 
which  it  may  be  authorised  to  issue,  and  the  deposits  which  it 
11 


82 

may  receive  ;  and  that,  whatever  confidence  may  be  placed  in 
its  ultimate  means,  there  can  be  none  in  its  available  resources. 
The  largest  association  of  this  description  has  hardly  attempted 
to  put  its  notes  in  circulation  ;  it  has  hardly  been  known  as  a 
banking  institution,  properly  so  called.  But,  whatever  may  have 
been  the  nature  of  its  operations,  and  although  it  is  hardly  pos- 
sible that  its  mortgages  should  be  worth  less  than  one  half  of 
their  nominal  value,  the  market  price  of  its  stock  is  not  more 
than  ten  or  twelve  per  cent.  In  this  case  the  loss,  so  far  as  is 
known,  falls  only  on  the  shareholders.  But  the  conclusive  proof 
of  the  unsoundness  of  the  system  is  found  in  the  fact  that,  out  of 
about  eighty  associations,  formed  under  the  law,  more  than 
twenty  have  failed  in  the  course  of  two  years  and  a  half  (u)  ; 
whilst,  as  has  already  been  stated,  two  only,  out  of  the  ninety 
chartered  banks,  have  failed  during  a  period  of  ten  years. 

The  numerous  failures  of  country  bankers  in  England,  in  par- 
ticular years,  have  already  been  alluded  to.  A  more  correct 
view  of  the  subject  will  be  obtained  by  taking  the  average  of  a 
number  of  years.  The  number  of  commissions  of  bankruptcy 
issued,  during  the  twelve  years,  1814  to  1825,  against  bank- 
ers, amounted  to  one  hundred  and  ninety-four ;  the  number  of 
bankers  was  estimated  to  amount  to  about  one  thousand.  The 
ratio  of  failures  to  the  number  of  bankers  was,  therefore,  six- 
teen per  cent,  in  ten  years.  The  ratio  of  failures  to  the  number 
of  chartered  banks,  in  the  State  of  New  York,  has  been  less 
than  two  and  a  quarter  per  cent,  during  the  last  ten  years. 
Here,  we  compare  personally  responsible  private  bankers  with 
banks,  in  which  the  capital  actually  paid  has  been  the  guarantee 
substituted  for  personal  responsibility,  and  which  have  been  re- 
gulated by  efficient  restrictions.  The  assertions,  that  the  commu- 
nity will  be  better  protected,  and  individuals  of  all  classes  less 
likely  to  be  imposed  upon,  under  a  system  in  which  there  is 
neither  personal  responsibility,  nor  any  assurance  of  a  sufficient 
and  real  capital  actually  paid,  nor  any  legal  restrictions  that 


(u)  The  securities  of  twelve  of  these,  which  had  been  deposited  with  the  Comp- 
troller, are  at  this  moment  advertised  for  sale  by  him,  in  order  to  pay  their  circu- 
lation. 


83 

may  prevent  the  dilapidation  of  that  capital,  is  a  pure  theoreti- 
cal opinion  wholly  unsustained  by  experience. 

Whenever  an  application  is  made,  either  for  the  reduction  of 
the  capital  of  a  chartered  bank,  or  for  the  renewal  of  the  char- 
ter, or  even  for  changing  the  location  of  a  bank  from  one  street 
to  another,  these  banks  continue  to  be  represented  as  privileged 
bodies ;  and  they  are  invited  to  surrender  their  charters,  and  to 
convert  themselves  into  free  associations  under  the  general  law. 

It  is  extraordinary  that  intelligent  men  should  still  consider 
the  chartered  banks  as  enjoying  exclusive  privileges.  The  mo- 
nopoly is  now  destroyed ;  and  all  persons,  or  associations  of 
persons,  may  now  establish  banks  on  more  easy  terms  than  those 
imposed  on  the  chartered  institutions,  and  with  all  the  privileges 
enjoyed  by  them.  If 'any  importance  be  attached  to  the  obliga- 
tion of  depositing  an  amount  of  State  stocks  or  mortgages, 
equal  to  that  circulation,  though  useless  and  even  injurious,  it 
may  easily  be  extended  by  a  legislative  act  to  the  chartered 
banks.  But,  if  the  enemies  of  monopolies  will  only  take  the 
trouble  to  examine  the  general  laws  respecting  monied  cor- 
porations and  the  special  charters  of  the  banks,  they  will  find 
that  these  banks  do  not  enjoy  a  single  privilege  which  is  not 
common  to  the  free  banking  associations  ;  and  that  what  they  are 
pleased  to  call  privileges,  consists,  on  the  contrary,  altogether  of 
restrictions.  There  is  not  now  the  slightest  foundation  for  the 
assertion,  and  it  has  become  quite  senseless. 

Two  things  are  requisite,  in  order  that  the  chartered  banks 
may  convert  themselves  into  free  associations ;  first,  that  a  law 
should  be  enacted  for  that  purpose ;  secondly,  that  the  free 
banking  law  should  be  so  modified  as  to  make  the  conversion 
proper. 

There  is  not  now  any  oth  r  legal  mode,  by  which  the  conver- 
sion can  be  effected,  than  by  a  dissolution  of  the  corporation,  and 
a  subsequent  association  of  the  shareholders.  The  manner  in 
which  a  corporation  can  be  voluntarily  dissolved,  is  prescribed 
by  law.  The  process  would  last  one  or  two  years,  during  which 
the  bank  must  suspend  all  its  active  operations ;  and,  in  order  to 
accomplish  the  object,  it  must  pay  all  its  liabilities  before  the 
shareholders  can  have  access  to  the  capital,  and  either  divide  it, 


84 

or  form  with  it  a  new  association.  It  must  therefore,  in  the  first 
instance,  lose  all  its  deposits  and  redeem  all  its  circulation,  and 
then,  at  the  end  of  two  years,  begin  anew  without  either.  Every 
person  practically  acquainted  with  banking,  knows  that,  under 
this  process,  five  or  six  years  would  elapse  before  the  bank  could 
recover  its  former  situation. 

But,  even  if  a  law  were  passed  authorising  the  immediate 
transmutation,  no  sound  bank  would,  or  at  least  ought  to,  avail 
itself  of  the  provision  ;  for  if  it  did,  it  would  immediately  lose  the 
public  confidence.  It  would  at  once  be  presumed,  that  a  bank 
pursuing  that  course  wanted  to  be  free  of  restrictions,  to  launch 
into  some  speculative  operation,  and  to  escape  responsibility. 
The  fact  is,  that  the  greater  confidence,  placed  in  the  chartered 
banks,  is  entirely  due  to  the  restrictions  imposed  by  law  upon 
them. 

It  is  at  the  same  time  highly  desirable,  that  all  the  banks  and 
banking  associations  should  be  placed  under  the  same  regimen, 
and  by  virtue  of  a  general  law,  instead  of  special  charters  or 
any  special  legislation.  It  seems  that  this  might  have  been 
done  with  great  facility,  at  the  time  when  the  free  banking  law 
was  enacted.  Nothing  more  was  necessary,  in  order  to  destroy 
the  monopoly,  than  a  short  act  authorising  the  forming  of  free 
associations,  with  all  the  corporate  attributes  given  by  the  pre- 
sent law,  but  precisely  on  the  same  terms,  which  are  imposed 
on  the  chartered  banks  by  the  general  laws  of  the  State.  This 
would  at  once  have  placed  all  on  an  equal  footing.  This  having 
been  done,  an  examination  of  those  laws  and  the  lessons  of  ex- 
perience would  have  enabled  the  Legislature  to  select  and  modi- 
fy such  of  the  existing  restrictions,  and  to  add  such  new  condi- 
tions, as  in  its  opinion  were  proper  and  -necessary.  Whether 
the  system,  thus  adopted,  had  embraced  few  or  many  restric- 
tions, or  had  repealed  them  altogether,  that  which  was  proper 
and  necessary  for  the  new  associations  was  equally  so  for  all  the 
chartered  banks  carrying  on  the  same  business.  The  power 
reserved  by  the  Legislature,  to  modify  and  alter  any  charter, 
extended  to  all  the  chartered  banks,  with  the  single  exception  of 
the  Manhattan,  and  perhaps  of  the  Dry  Dock  Company.  The 
four  other  banks,  not  under  the  Safety  Fund,  are  understood  to 


85 

have  assented,  in  conformily  with  the  Suspension  Act,  that  the 
Legislature  might  modify  or  repeal  their  charters. 

There  does  not  seem  to  be,  at  present,  any  serious  obstacle  to 
the  same  course  of  proceeding.  No  special  act,  Affecting  singly 
any  one  of  the  new  banking  associations,  can  be  passed ;  but  the 
Legislature  may  at  any  time  alter  or  repeal  the  act  itself.  Vest- 
ed interests  must  be  respected ;  and  for  that  purpose,  it  would 
be  sufficient  to  limit  the  duration  of  all  such  existing  associations 
to  a  limited  term  of  years,  and  their  capital  to  the  amount  act- 
ually paid  at  the  time  when  the  new  amended  law  did  pass. 
The  restrictions,  deemed  necessary  and  proper  by  the  Legisla- 
ture, would  then  be  extended  to  all  the  existing  free  associations 
and  chartered  banks,  as  well  as  to  all  other  free  associations 
which  might  thereafter  be  formed.  The  object  should  be,  that 
all  the  charters  should  merge  in  the  general  law ;  and  that  the 
law  should  be  precisely  the  same  for  all  those  engaged  in  the 
same  pursuit.  What  restrictions  should,  in  the  opinion  of  the 
writer,  be  preserved  or  added,  have  already  been  fully  stated. 

It  is  believed,  and  the  belief  is  corroborated  by  the  result  of 
private  banking  in  England,  and  by  what  is  known  respecting 
the  new  joint  stock  companies  of  that  country,  that  there  is  dan- 
ger in  granting  the  unrestricted  power  of  issuing  a  paper  cur- 
rency, even  when  accompanied  by  the  personal  responsibility  of 
those  who  issue  the  paper.  But  this  applies  only  to  notes  of  a 
certain  denomination.  Notes  of  one  hundred  dollars,  and  of  a 
higher  denomination,  circulate  almost  exclusively  between  dealers 
and  dealers,  and  might,  like  bills  of  exchange,  be  permitted  to 
circulate  without  any  restrictions,  or  other  guarantee  than  the 
personal  responsibility  of  the  persons  or  associations  by  whom 
they  were  issued. 


86 


ACTION  OF  CONGRESS. 

THE  objects  to  which,  in  reference  to  currency,  the  powers 
vested  in  the  General  Government  may,  it  is  believed,  be  ap- 
plied; and  which  will  probably  become,  at  this  time,  subjects  of 
discussion,  are  the  Sub-Treasury,  a  Bank  of  the  United  States, 
and  a  Bankrupt  Law. 

The  Government  of  the  United  States  has  the  undoubted  right 
to  entrust  the  custody  of  the  public  monies  to  its  own  officers ; 
and  this  is  sometimes  necessary.  It  may  also,  and  every  indi- 
vidual has  the  same  right  for  debts  due  to  him,  require  the  pay- 
ment of  taxes,  and  other  branches  of  the  revenue,  to  be  made 
exclusively  in  gold  or  silver.  And  it  is  bound  to  carry  into 
effect  the  provision  of  the  constitution,  which  directs  that  all 
duties,  imposts  and  excises  shall  be  uniform  throughout  the 
United  States. 

From  the  time  when  the  Government  was  organised,  till  very 
lately,  it  had  been  thought  safer,  whenever  it  was  practicable, 
to  commit  the  custody  of  the  public  monies  to  banks,  rather  than 
to  intrust  them  to  the  officers  of  Government ;  and  there  is  no 
doubt  in  that  respect,  whenever  the  money  can  be  deposited  in 
sound  and  specie-paying  banks.  In  that  opinion  the  whole  com- 
munity coincides.  The  character  of  the  late,  as  well  as  that  of 
the  present  receiver  for  the  city  of  New  York,  is  irreproachable. 
Yet  it  would  be  difficult  to  find  any  individual  in  his  senses,  who 
would  not  deposit  his  money  in  a  sound  city  bank,  rather  than 
in  the  hands  of  the  receiver.  The  capital  of  the  bank  is  a  better 
security  than  the  bonds  of  any  private  person ;  and  the  banks 
are  answerable  for  contingent  losses,  such  as  fire  or  robbery, 
for  which  a  public  officer  cannot  be  made  responsible.  So 
long,  also,  as  the  bank  currency  remains  equivalent  to  the  pre- 
cious metals,  it  is  much  more  convenient  both  for  Government, 
for  those  who  have  duties  to  pay,  and  for  all  the  parties  con- 
cerned, to  conform  to  the  general  usage  rather  than  to  require 
payments  in  specie. 

But  the  depreciated  currency  of  banks,  which  have  suspended 


87 

specie  payments,  cannot  be  received  in  payment  of  duties  and 
of  other  taxes,  without  a  violation  of  the  principles  of  justice, 
and  of  the  positive  injunction  of  the  constitution.  And  instances 
may  occur  in  some  sections  of  the  country,  where  it  would  be 
unsafe  even  to  make  a  special  deposit  of  the  public  monies  in 
any  bank  in  that  section.  At  a  time  when  one  half  of  the  public 
revenue  is  collected  in  places  where  all  the  banks  have  sus- 
pended specie  payments,  Treasury  notes  appear  to  afford  the 
most  convenient  means  of  complying  with  the  constitution,  and 
of  rendering  the  duties  uniform  throughout  the  United  States  (v)> 
Some  other  means  of  accomplishing  that  object  must  be  devised, 
if  it  should  please  Congress  to  suppress  the  use  of  those  notes, 
and  to  repeal  altogether  the  Sub-Treasury  act. 

The  specie  clause,  as  it  is  called,  of  the  act  is,  however,  liable 
to  serious  objections.  It  had  already  been  previously  provided, 
that  the  Secretary  of  the  Treasury  should  not  employ  any  bank 
which  had  suspended  specie  payments.  The  new  provision, 
which  extended  the  prohibition  to  all  the  banks  without  exception, 
was  in  fact  operative  against  those  banks  alone  which  continued 
to  pay  in  specie.  Those  who  had  duties  to  pay  might  be  an- 
noyed ;  but  it  was  quite  immaterial  to  fhe  banks  which  had 
ceased  to  pay  any  of  their  liabilities  in  specie,  whether  the  du- 
ties were  paid  in  coin  ;  the  demand  for  it  did  not  fall  upon  them. 
It  was  quite  otherwise  in  the  places  where  specie  payments 
were  sustained  ;  and  the  law  in  that  respect,  though  probably 
not  thus  intended,  was  a  warfare  directed  exclusively  against 
those  institutions  which  performed  their  duty,  and,  not  without 
some  difficulty,  sustained  a  sound  currency.  It  is  true  that,  in 
the  actual  state  of  things,  and  whilst  the  revenue  falls  short  of 
the  expenses,  the  law,  though  occasionally  annoying,  does  not 
produce  any  sensible  effect ;  but  this  also  proves  that  it  was  not 
necessary. 

Whenever  the  revenue  shall  exceed  the  expenditure,  the  law 


(c)  The  Treasury  notes  are  a  mere  transcript  of  the  English  Exchequer  bills. 
Used  as  soberly  as  they  have  been  of  late  years  by  the  Treasury  Department,  and 
provided  they  are  kept  at  par,  they  are  the  most  convenient  mode  of  supplying  a 
temporary  deficiency  in  the  revenue ;  as  well  as  the  most  convenient  substitute  for 
currency,  in  the  payment  of  duties,  during  a  suspension  of  specie  payments. 


88 

will  operate,  and,  if  the  excess  should  again  be  considerable,  the 
drain  of  specie  this  would  occasion,  might  indeed  break  any  bank, 
and  render  the  suspension  of  specie  payments  universal.  It 
cannot  be  perceived,  in  what  manner  the  measure  can,  in  any 
way  whatever,  have  a  tendency  towards  restoring  a  general 
sound  currency.  It  is  utterly  impossible  to  substitute,  other- 
wise than  very  gradually,  a  currency  consisting  exclusively  of 
the  precious  metals,  for  that  which  now  pervades  the  whole 
country. 

Any  great  accumulation  of  the  public  monies  is  attended  with 
such  evils,  that  it  must  at  all  events  be  averted.  If  consisting  of 
gold  and  silver  accumulated  in  the  Treasury  chest,  it  is  an  active 
capital  taken  from  the  people  and  rendered  unproductive.  If 
deposited  in  banks,  or  consisting  of  bank  paper,  it  may  again 
produce  a  fatal  expansion  of  the  discounts  and  issues  of  the  banks, 
attended  by  over-trading,  and  followed  by  contractions  and  a 
general  derangement. 

Another  objection  to  the  law  was  that,  with  the  exception  of 
Congress  and  of  the  officers  of  the  General  Government,  it 
seemed  as  if  the  whole  community  was  opposed  to  the  measure. 
If  necessary  and  proper  for  that  Government,  it  was  equally  so 
for  that  of  every  individual  State.  And  yet  it  was  not  adopted, 
or  even  proposed,  by  the  Legislature  of  a  single  State.  On  the 
contrary,  even  in  some  of  those  most  friendly,  and  to  the 
last  most  faithful,  to  the  late  Administration,  a  direct  and  legal 
sanction  was  given  to  the  collection  of  the  State  revenue  in  a 
depreciated  and  irredeemable  currency,  instead  of  requiring 
payment  in  specie,  as  was  done  by  the  act  of  Congress. 

This  country  had  a  sound  currency,  and  there  was  no  general 
suspension  of  specie  payments,  so  long  as  either  of  the  two  Banks 
of  the  United  States  was  in  existence.  The  refusal  to  renew 
the  charters  was,  in  both  instances,  followed  by  a  large  increase 
of  State  banks,  and  shortly  after  by  a  general  suspension  of 
payments.  The  resumption  which  took  place  in  1817,  imme- 
diately followed,  and  has  been  generally  ascribed  to,  the  estab- 
lishment of  the  second  national  bank.  Notwithstanding  the  ef- 
forts of  the  banks  of  New  York  and  of  New  England, 
subsequent  to  the  suspension  of  1837,  a  general  resumption- 
has  not  yet  taken  place.  A  considerable  portion  of  the  com- 


89 

rnercial  community  therefore  hopes,  that  a  new  Bank  of  the 
United  States  will  accelerate  such  resumption,  and  again  secure 
a  currency  equivalent  to  gold  and  silver.  This  confidence,  if 
sustained  by  a  proper  administration  of  the  contemplated  bank, 
might  go  far  towards  attaining  the  object  in  view.  Confidence 
is  certainly  a  most  powerful  element  in  sustaining  any  system  of 
paper  currency* 

On  the  other  handj  a  national  bank  has  ever  been,  and,  from 
its  nature,  must  be,  generally  unpopular.  It  will  always  be  as- 
sailed by  those  who  are  opposed  generally  to  banks ;  by  many, 
as  not  warranted  by  the  constitution ;  and  at  present,  from  consi- 
derations connected  with  the  state  of  parties.  It  must  also  be 
admitted  that  great  power  is  always  liable  to  be  abused  ;  and  it 
cannot  be  doubted,  that  the  catastrophe  of  the  United  States 
Bank  has  shaken  confidence,  and  given  additional  strength  to 
the  arguments  against  a  bank  of  that  name  and  character,  and 
with  such  a  large  capital. 

These  considerations  render  it  necessary  to  act  with  great 
caution  and  due  deliberation ;  to  form  a  just  estimate  of  the  ad- 
vantages which  may  be  expected  from  the  intended  bank ;  and  to 
inquire  by  what  provisions  the  substantial  objections  against  the 
institution  may  be  obviated. 

The  opinions  of  the  writer  respecting  the  constitutional  pow- 
ers of  Congress,  the  great  utility  of  a  national  bank  as  the  fiscal 
agent  of  Government,  and  the  aid  which  may  be  derived  from 
it  to  regulate  the  general  currency  of  the  country,  are  the  same 
as  heretofore.  The  constitutional  question  has  been  so  long  and 
in  so  many  shapes  under  consideration,  that  the  subject  appears 
to  be  exhausted ;  and  nothing  needs  be  added  in  that  respect. 
Independently  of  the  temporary  accommodations  which  a  Bank 
of  the  United  States  affords  to  Government,  when  required  to 
supply  a  temporary  deficiency  in  the  revenue,  and  of  the  advan- 
ces which  it  may,  in  extraordinary  times,  make  to  the  contract- 
ors of  public  loans,  there  cannot  be  any  doubt  that,  as  regards 
the  security  and  transmission  of  public  monies  and  the  general 
convenience  of  the  Treasury,  a  national  bank  is  far  preferable  to 
those  of  individual  States.  The  experience  of  the  writer,  under 
both  systems,  permits  him  to  make  the  assertion  with  perfect 
confidence. 

12 


90 

The  only  way  in  which  a  Bank  of  the  United  States  can 
regulate  the  local  currencies,  is  by  keeping  its  own  loans  and 
discounts  within  narrow  bounds,  and  rigorously  requiring  a 
regular  payment  of  the  balances  due  to  it  by  the  State  banks. 
The  object  might  be  attained  without  its  aid,  in  places  where 
the  local  banks  will,  by  adopting  the  same  course,  check  each 
-*other  and  regulate  themselves.  Where  this  does  not  take  place, 
the  interference  of  the  National  Bank  is  of  great  importance 
and  highly  useful.  But  the  measure  is  practically  difficult  and 
generally  unpopular ;  though  it  might  be  rendered  more  pal- 
atable, if  the  bank  was  forbidden  to  use  the  public  deposits, 
beyond  a  certain  amount,  for  its  own  benefit. 

This  favorable  result  may  be  reasonably  expected  whenever 
a  general  resumption  shall  have  taken  place.  But  doubts  may 
be  entertained,  whether,  under  existing  circumstances,  the  bank 
can  cause  a  general  resumption  without  the  aid  of  State  legis- 
lation, or  the  co-operation  of  the  State  banks  ;  and  it  is  perfectly 
clear,  that  it  cannot  act  as  a  regulator  of  local  currencies,  in 
those  places  where  the  banks,  from  any  cause  whatever,  con- 
tinue to  suspend  their  specie  payments.  It  would  seem  neces- 
sary to  ascertain  in  what  places,  and  particularly  in  which  of 
the  great  centres  of  commerce,  a  National  Bank  is  desired, 
and,  from  the  confidence  it  might  inspire,  would  induce  a  re- 
sumption. 

Some  other  advantages,  of  a  more  doubtful  nature,  seem  to  be 
expected  from  a  Bank  of  the  United  States  ;  such  as  an  increase 
of  commercial  facilities ;  a  greater  uniformity  in  domestic 
exchanges  ;  and  a  hope  that  its  notes  may,  to  a  great  extent, 
advantageously  supersede  those  of  the  local  banks. 

An  increase  of  the  mass  of  commercial  loans  is  not  at  all 
desirable.  The  number  of  banks  and  the  amount  of  their  dis- 
counts is  already  too  great ;  and  in  order  to  be  useful,  the  effect 
of  the  loans  and  of  the  circulation  of  the  National  Bank,  should 
be  to  lessen,  and  not  to  increase,  the  gross  amount  of  both. 

The  great  inequality  and  fluctuations  of  the  domestic  ex- 
changes, so  far  as  they  are  the  result  of  depreciated  currencies, 
cannot  be  remedied  by  a  Bank  of  the  United  States,  as  long  as 
they  continue  to  be  the  local  circulating  medium.  After  that 
evil  shall  have  been  removed  by  a  resumption  of  specie  pay- 


91 

ments,  the  bank  cannot  and  ought  not  to  interfere,  any  farther 
than  as  purchasers  and  sellers  of  exchange  and  drafts,  in  the 
same  manner  as  other  money  dealers.  It  is  only  as  an  addi- 
tional dealer,  with  greater  funds  and  facilities  than  any  other, 
that  the  bank  may  bring  exchange  nearer  to  par,  or,  in  other 
words,  transmit  on  cheaper  terms  funds  from  one  place  to 
another,  as  they  may  be  wanted. 

But  it  is  a  great  error  to  suppose  that  it  can  afford  a  gene- 
rally uniform  currency;  or  one  which  shall,  at  the  same  time,  be 
of  the  same  value  in  all  places.  This  is  to  confound  exchange 
and  currency,  and  to  suppose  that  paper  money  may  not  only 
be  a  true  representative  of  gold  and  silver,  but  can  perform  that 
which  gold  and  silver  cannot  accomplish. 

The  fluctuations  in  the  rate  of  exchange,  like  those  in  the 
market  price  of  commodities,  depend  on  the  relative  amount  of 
supply  and  demand  ;  and  these  again  on  the  relative  indebted- 
ness and  the  actual  means  of  making  remittances.  When 
American  coins  can  purchase  in  New  York  bills  on  London, 
which  will  produce  there  an  amount  of  British  coins,  containing 
as  much  pure  gold  as  was  contained  in  the  American  coins  with 
which  the  bills  were  purchased,  it  is  called  the  true  par  of  ex- 
change. If  the  amount  of  British  coins,  obtained  in  London  for 
the  bills,  contain  less  pure  gold  than  the  American  coins  paid 
for  the  bills,  it  is  a  clear  proof,  that  the  same  quantity  of  pure 
gold  is  worth  less  in  New  York  than  in  London;  and  this 
cannot  be  altered  by  substituting  in  New  York,  for  coin,  a  paper 
money  which  has  no  other  property  than  that  of  being  con- 
vertible into  coin  at  New  York  at  its  nominal  value.  The  case 
is  precisely  the  same  between  New  Orleans  and  New  York,  or 
between  any  two  places  whatever. 

A  National  Bank  may  find  it  possible,  and  convenient,  to  give 
occasional  facilities  in  that  respect.  But  it  can  no  more  issue  a 
currency  necessarily  payable,  at  the  option  of  the  holder,  in 
several  places,  than  a  merchant  can  bind  himself  to  be  ready  to 
pay  a  debt  at  five  or  six  different  places,  at  the 'option  of  his 
creditor  and  without  notice. 

If  the  bank  should  issue  all  its  notes  payable  at  one  place,  they 
would  be  currency  at  the  place  of  issue  ;  and,  in  every  other 
place,  they  would  be  worth  more  or  less  than  the  local  currency, 


92 

or  than  gold  or  silver,  according  to  the  rate  of  exchange 
between  such  places  respectively,  and  the  place  of  issue  where 
alone  they  were  made  payable.  If  the  notes  are,  as  heretofore, 
made  payable  at  various  places,  such  issues  will  make  part  of 
the  local  currency  of  the  places  where  they  are  respectively 
made  payable,  and  cannot  pay  debts  elsewhere,  any  more  than 
the  notes  of  local  banks. 

It  would  seem  generally  to  follow,  that  the  circulation  of  a 
Bank  of  the  United  States  cannot  be  otherwise  extended,  than 
in  as  far  as  it  may  supersede  the  local  currencies  of  the  several 
States.  In  former  times,  that  circulation  was  principally  in  the 
South  and  in  the  West,  as  will  appear  by  the  following  authen- 
tic statement  of  the  places  where  the  notes  in  actual  circulation 
of  the  Bank  of  the  United  States  were  payable,  in  September, 
J830:— 

Payable  in  New  England $834,492 

"          New  York 834,733 

Philadelphia  1,367,180 

"          Baltimore  and  Washington 1,176,240 

"          the  Southern  States 3,074,045 

"          the  N. Western  States,  including  Buffalo  and  Pittsburg. . .  3,261 ,547 

«          the  South-Western  States 4,799,420 

$15,347,657 


It  may  be  doubted  whether  a  similar  proportionate  amount 
can  now  be  circulated  in  quarters  which  have  become  satura- 
ted with  paper  money.  It  is  not  impossible  that  this  may  take 
place  in  those  States  where  the  evils  of  a  depreciated  currency 
have  become  intolerable. 

An  additional  demand,  to  a  moderate  amount,  for  notes,  prin- 
cipally of  five  dollars,  payable  at  New  York  or  Philadelphia, 
may  also  be  expected  on  account  of  their  great  convenience  in 
travelling,  and  for  small  remittances.  Checks  and  bills  of  ex- 
change are  safer  and  more  convenient  than  bank  notes,  for  large 
remittances. 

If  a  Bank  of  the  United  States  can,  notwithstanding  the  obsta- 
cles of  conflicting  opinions  and  interests,  be  again  created  by 
Congress,  it  will  be  necessary  to  guard  against  the  evils  which 
such  an  institution  may  produce.  The  views  of  the  writer,  such 


93 

as  they  are,  have  already  been  stated  in  the  preceding  pages. 
Those  provisions  that  seem  most  important,  in  reference  to  a 
National  Bank,  will  be  recapitulated. 

The  danger  of  an  abuse  of  the  power,  which  must  necessarily 
be  given,  is  increased  in  proportion  to  the  magnitude  of  the  capi- 
tal. This  should  not  be  greater  than  is  necessary  for  the  object 
intended.  The  bank  is  not  wanted  in  order  to  increase  the 
amount  of  commercial  accommodations.  A  small  capital  would 
suffice  for  its  operations,  in  its  character  of  fiscal  agent  of  the 
Government.  For  the  purpose  of  regulating,  as  far  as  practica- 
ble, the  local  currencies,  it  is  not  necessary  that,  at  least  at  first, 
it  should  be  extended  beyond  the  great  centres  of  commerce. 
The  power  hereafter,  if  found  requisite,  to  increase  the  capital, 
might  be  reserved  by  Congress.  A  large  capital  is  not  wanted 
for  the  purpose  of  sustaining  an  adequate  circulation ;  and  this 
may  be  increased,  without  danger,  beyond  its  ordinary  limits, 
provided  the  amounts  of  loans  and  discounts  be  kept  within  nar- 
row bounds.  The  Bank  of  England,  with  a  capital  of  fourteen 
millions  sterling,  sustains  a  circulation  of  at  least  eighteen  mil- 
lions. The  Bank  of  France,  with  a  capital  of  sixty-eight  mil- 
lions of  francs,  (about  thirteen  millions  of  dollars,)  has  a  circula- 
tion of  two  hundred  and  forty  millions,  and  generally  in  its  vaults 
two  hundred  and  thirty  millions  of  specie.  It  may  be  added, 
that,  under  existing  circumstances,  the  plan  may  fail  altogether, 
unless  the  amount  required  be  moderate  (w). 

It  is  believed  that  a  capital  of  fifteen  millions  of  dollars,  paid 
altogether  in  specie,  or  in  bank  notes  equivalent  to  specie,  would 
be  amply  sufficient.  To  this  may  be  added,  if  deemed  eligible, 
and  to  be  viewed  as  an  ultimate  guarantee,  five  millions  of  dol- 
lars in  a  five  per  cent,  stock  of  the  United  States.  The  bank 
should  not  be  authorised  to  dispose  of  that  stock,  without  the 
leave  of  Congress,  or  perhaps  of  the  Treasury  Department.  No 
other  description  of  stocks  should  be  admitted  as  part  of  the 
capital. 

Besides  the  restrictions  imposed  by  the  charter  of  the  late 


(to)  The  views  of  the  writer  have  in  that  respect  been  modified  since  the  year 
1811,  by  observations  abroad,  by  practical  banking  experience  at  home,  and  by  the 
aberrations  of  the  late  Bank  of  the  United  States. 


94 

bank,  the  amount  of  loans,  discounts,  and  all  other  investments 
bearing  an  interest,  should  be  limited,  so  as  not  to  exceed  once 
and  a  half  the  amount  of  the  capital,  or,  at  most,  sixty  per  cent, 
beyond  it.  It  has  already  been  shown,  that,  with  that  limitation, 
after  the  maximum  of  such  investments  has  been  reached, 
the  amount  of  specie  must  necessarily  increase  with  that  of 
circulation  and  deposits.  When  such  reciprocal  increase 
takes  place  naturally,  it  produces  no  inconvenience.  If  it  should 
be  the  result  of  a  considerable  increase  of  accumulated  revenue, 
it  will  produce  the  same  evils  which,  under  any  circumstances, 
are  the  consequence  of  such  an  increase.  Taxes  to  a  large 
amount  would  be  intolerable,  if  they  were  not  expended,  and  if  the 
money  drawn  from  the  people  was  not  immediately  restored  to 
circulation.  But  if,  notwithstanding  the  measures  which  may 
be  adopted  by  Government,  in  order  to  prevent  an  undue  accu- 
mulation, this  should  occasionally  take  place,  the  restriction  on 
the  amount  of  loans  and  discounts  will  prevent  the  application 
to  that  object  of  the  excess  of  public  deposits.  Whether  the 
amount  of  specie  in  the  bank  should  be  increased  from  that 
cause,  or  by  a  natural  extension  of  its  circulation  and  individual 
deposits,  that  specie  will  afford  an  ample  security  for  the  pay- 
ment of  all  the  liabilities  of  the  institution.  In  that  case,  the 
bank  would  be  the  great  reservoir  which  might,  if  applied  pro- 
perly, supply  sudden  demands,  and,  at  critical  times,  sustain  the 
other  banks,  protect  the  local  currency,  and  lessen  the  commer- 
cial distress. 

It  is  presumed  that  the  ordinary  restrictions,  forbidding  to 
deal  in  real  estate,  merchandise  or  stocks,  will  be  retained,  and 
that  the  bank  will  be  confined  strictly  to  pure  and  legitimate 
banking  operations. 

The  provisions  which  have  been  already  suggested  in  case  of 
a  suspension  of  specie  payments,  appear  indispensable,  as  well  as 
pne  which  will  declare  the  bank  to  be  necessarily  dissolved,  if 
the  suspension  continues  more  than  a  year. 

Whether  the  bank  should  absolutely  be  forbidden  to  issue 
post  notes  ;  and  whether  a  limitation  on  the  amount  of  dividends, 
which  in  fact  will  be  limited  by  the  restrictions  on  the  amount 
of  loans  and  discounts,  be  necessary ;  are  questions  which  may 
deserve  consideration.  But,  in  order  to  enforce  the  restrictions 


95 

and  conditions  of  the  charter,  whatever  they  may  be,  a  rigorous 
and  regular  inspection  by  officers  appointed  by  Government  is 
absolutely  necessary.  The  power  to  make  occasional  examina- 
tions by  committees  of  either  branch  of  the  Legislature  may  be 
reserved,  but  is  not  adequate  to  the  purpose.  In  that  respect, 
the  law  of  New  York,  for  the  establishment  of  bank  commis- 
sioners, may  serve  as  a  model.  It  has  been  tested  by  the  ex- 
perience of  ten  years,  and  has  been  attended  with  none  but 
beneficial  results.  The  power  given  to  them,  to  inspect  all  the 
books  and  papers,  without  excepting  the  accounts  of  individuals, 
and  that  of  examining  upon  oath  all  the  officers  of  every  bank, 
and  every  other  person,  concerning  its  affairs,  are  both  neces- 
sary and  have  never  been  abused.  In  the  case  under  conside- 
ration, the  commissioners  would  naturally  be  placed  under  the 
superintendence  of  the  Treasury  Department.  The  appoint- 
ment of  directors  by  Government  may  be  useful,  but  is  less  im- 
portant. 

Amongst  many  suggestions  that  have  been  made,  and  which 
deserve  consideration,  there  is  one  which  appears  important, 
principally  in  order  that  the  bank  may  have  a  truly  national 
character  and  not  degenerate  into  a  local  institution.  It  is  pro- 
posed that  the  general  control  of  the  bank  should  be  separated 
from  the  local  business  of  the  place  where  it  may  be  located. 
Nothing  more  is  meant  by  this,  than  that  the  office  of  discount 
and  deposit  for  that  place  should  be  as  distinct  from  the  gene- 
ral direction,  as  the  branches  which  are  located  in  other  places ; 
and  that  such  office  should  be  considered  simply  as  one  of  the 
branches.  In  that  case,  the  members  of  the  general  direction 
might  be  but  few  ;  no  more  than  one  or  two  from  any  one 
State  ;  and  it  would,  therefore,  be  necessary,  in  order  to  secure 
the  constant  attendance  of  those  from  other  States  than  that  in 
which  the  main  bank  was  located,  that  they  should  receive  a 
competent  and  even  liberal  salary.  But  this  general  board, 
though  separated  from  the  office  of  discount,  must  still  necessa- 
rily sit  in  a  great  commercial  city. 

The  constitution  of  the  United  States  provides,  that  Congress 
shall  have  power  to  establish  an  uniform  rule  of  naturalisation, 
and  uniform  laws  on  the  subject  of  bankruptcies  throughout  the 
United  States. 


96 

The  true  meaning  of  the  word  "  bankruptcies"  has  been  ques- 
tioned. But  whether,  according  to  the  sense  in  which  the  word 
was  generally  used  and  understood  at  the  time  when  the  con- 
stitution was  adopted,  it  embraces  all  persons  unable  or  unwil- 
ling to  pay  their  debts,  or  is  confined  only  to  traders  and 
dealers,  it  is  conceded  on  all  hands,  that  it  is  applicable  to  all 
who  are  universally  admitted  to  be  traders  or  dealers.  And  it 
cannot  be  denied  that  bankers,  or  dealers  in  money,  are  included 
within  that  description. 

In  other  respects  the  power  is  given  in  express  terms,  and  in 
the  most  general  manner.  It  is,  to  pass  laws  on  the  subject  of 
bankruptcies.  Congress  is  not,  therefore,  bound  by  the  specific 
provisions  of  the  pre-existing  laws,  on  that  subject,  of  any 
country.  It  may  define  what  acts  shall  constitute  bankruptcy  ; 
what  shall  be  the  remedy  in  reference  both  to  the  creditor  and 
to  the  debtor  ;  and  what  shall  be  the  mode  of  proceeding.  The 
question  to  be  examined  is,  whether  the  law  shall  apply  to 
banking  corporations.  The  intrinsic  propriety  of  including  those 
institutions  can  hardly  be  denied  ;  and  no  act  of  Congress  could 
be  more  useful  and  efficient,  for  the  purpose  of  securing  a  gen- 
eral sound  currency. 

The  general  evil  under  which  the  whole  country  labors,  is 
that,  owing  to  the  dissimilar,  imperfect,  fluctuating,  or  relaxed 
legislation  of  the  several  States,  those  institutions  or  corporate 
bodies  which  have  been  permitted  to  issue  a  paper  currency, 
on  the  express  condition  that  it  should  be  at  all  times  redeema^ 
ble,  on  demand,  in  gold  or  silver,  are  suffered  with  impunity  to 
break  their  engagements,  and  to  pay  their  debts  in  a  depreciated 
paper,  not  equivalent  to  that  which,  by  the  constitution,  is  de- 
clared to  be  the  only  tender  in  payment  of  debts.  A  law  which 
shall  declare  it  to  be  an  act  of  bankruptcy,  on  the  part  of  all 
those  who  issue  notes  or  evidences  of  debt  to  be  put  in  circula- 
tion as  money  (y),  to  continue,  for  a  certain  length  of  time,  to 
decline  or  refuse  to  redeem  in  specie  such  notes  or  bills,  would 
afford  the  most  general  and  efficient  preve/ntive  and  remedy 


(y)  These  are  the  technical  words  used  in  the  law  of  New  York,  in  relation  to 
the  issuing  and  circulation  of  bank  notes. 


97 

that  can  be  devised.  It  would  alone  be  sufficient  to  arrest  the 
evil,  to  place  all  the  States  on  a  footing  of  equality,  and  to 
restore  and  maintain  the  soundness  of  all  the  local  currencies. 

The  laws  of  the  same  purport,  enacted  by  New  York,  and  by 
some  other  States,  are  in  fact  bankrupt  laws  applied  to  that  special 
object.  Those  States,  and  all  those  which  maintain,  or  are  de- 
sirous of  maintaining  specie  payments  and  a  sound  currency, 
are  deeply  interested  in  making  the  law  general.  It  must  also 
be  observed,  that  incorporated  banks  enjoy  already  all  the  privi- 
leges which  a  bankrupt  law  can  afford  to  debtors ;  that  is  to 
say,  that,  on  surrendering  all  the  property  which  belongs  to  the 
corporation,  no  further  demand  can  be  made  either  against  it, 
nor,  in  their  individual  capacity,  against  its  members.  It  is, 
therefore,  strictly  consistent  with  justice,  that  they  should  be 
made  subject  to  the  provisions  of  that  branch  of  the  bankrupt 
law,  which  is  intended  to  protect  the  creditors.  In  point  of  fact, 
the  whole,  or  almost  the  whole,  banking  business  of  the  United 
States  is  carried  on  by  incorporated  banks.  To  exempt  them 
from  the  operation  of  a  general  law  is,  not  only  the  grant  of  a 
banking  monopoly,  but  an  exclusive  privilege  in  favor  of  a  spe- 
cial class  of  dealers  ;  and  the  occupation  of  those  dealers,  that 
of  substituting  a  paper  for  a  specie  currency,  is  of  all  others  the 
most  dangerous  to  the  community,  and  that  which  requires  to 
be  most  strictly  restrained  by  legal  enactments,  instead  of  being 
exempt  from  the  provisions  of  a  law,  which  applies  to  every 
other  description  of  dealers. 

Although  the  great  utility  and  strict  justice  of  the  application, 
of  a  general  bankrupt  law  to  incorporated  banks  may  not  be  de- 
nied ;  it  seems  that  the  power  of  Congress  in  that  respect  has 
been  questioned,  by  some  persons,  as  an  infringement  of  the 
rights  of  the  States,  and  as  not  being  warranted  by  the  constitu- 
tion. The  object  of  this  essay  is  to  suggest  such  provisions  as 
appear  useful  and  practicable,  on  subjects  which  are  familiar  to 
the  writer,  rather  than  to  discuss  constitutional  questions,  which 
may  be  beyond  his  competency.  But,  in  this  instance,  the  ob- 
jection seems  so  extraordinary,  that  some  desultory  observations 
may  be  permitted. 

The  power  to  establish  uniform  laws  on  the  subject  of  bank- 
13 


98 

ruptcies  throughout  the  United  States,  is  not  implied  but  ex- 
press ;  and  it  is  given  in  the  most  general  and  extensive  terms 
that  could  be  devised,  without  any  other  limitation  than  that 
which  may  be  deduced  from  the  meaning  of  the  word  "  bank- 
ruptcies," and  which  does  not  apply  to  the  question  under  con- 
sideration. The  laws  must  be  uniform.  It  may  perhaps  be  said, 
that  the  condition  of  uniformity  is  not  violated,  by  exempting 
from  the  operation  of  the  law  a  certain  class  of  dealers,  pro- 
vided all  the  dealers  of  that  description  are  exempted.  But  this 
would  be  a  dangerous  principle.  The  power  of  passing  laws 
on  the  subject  of  bankruptcies,  like  that  to  regulate  commerce 
among  the  several  States,  of  which  it  is  in  fact  only  a  part,  must 
be  uniform  in  every  respect.  To  permit  every  other  species  of 
property  to  be  freely  carried  from  one  State  to  another,  and  to 
except  slaves,  by  forbidding  their  being  transported  from  one 
slaveholding  to  another  slaveholding  State,  would  certainly  be 
considered  as  a  direct  violation  of  the  constitution. 

The  power  of  the  several  States,  to  create  corporations  or 
artificial  bodies  is  universally  acknowledged.  And,  although 
the  privilege  may  not  be  absolutely  essential,  yet  as  by  usage  it 
is  almost  universal,  the  power  to  confine  the  responsibility  to 
the  property  owned  by  the  corporation  as  such,  and  to  make  its 
members  irresponsible,  is  also  admitted.  But  it  is  not  perceived, 
on  what  principle,  those  artificial  bodies  can  in  any  other  respect 
be,  any  more  than  natural  persons,  rightfully  exempted  from  the 
legitimate  general  laws  of  the  United  States.  Such  exemption 
has  not  heretofore  been  claimed.  The  incorporated  banks  may, 
in  many  instances,  be  sued  in  the  courts  of  the  United  States. 
Judgments  may  be  obtained  in  those  courts  against  them,  and 
execution  levied  on  their  corporate  property.  Their  real  estate 
is  liable  to  taxation,  whenever  the  United  States  lay  a  direct 
tax  on  property  of  that  description.  Their  notes  were  made 
liable  to  the  stamp  duty,  in  common  with  the  notes  of  private 
individuals.  The  individual  States  might  have  claimed  the  right 
to  exempt  those  institutions  in  all  those  respects,  with  as  much 
propriety,  as  in  reference  to  a  bankrupt  law.  The  claim  might 
be  extended  to  all  other  associations  of  persons,  incorporated  for 
establishing  manufactures,  or  for  any  other  enterprise  whatever ; 
and  associations,  not  only  for  carrying  on  manufactories,  but 


99 

also  fisheries,  the  fur  trade,  and  other  species  of  business,  have 
actually  been  incorporated  by  some  of  the  States. 

A  system  of  free  banking  has  been  introduced  into  the  State 
of  New  York,  by  authorising  associations  for  that  purpose, 
which  are  not  by  law  considered  as  corporations ;  and  it  is 
hoped  that  the  system  will  become  general  and  operate  a  conver- 
sion of  all  the  chartered  banks  into  free  and  not  incorporated 
associations.  Would  it  be  just  that  they  should  be  subject  to 
the  bankrupt  law,  whilst  the  chartered  banks  remained  exempted 
from  its  operation  ? 

It  may  perhaps  be  alleged  that,  inasmuch  as  the  States  have 
respectively  passed  laws  ,providing  for  the  manner  in  which  the 
property  of  the  incorporated  banks  may  be  sequestered,  placed 
in  the  hands  of  trustees  or  receivers,  and  be  distributed  amongst 
the  creditors,  the  United  States  have  no  right  to  interfere,  and 
to  provide  other  means  for  the  same  purpose.  But  it  has  been 
generally  admitted,  and  the  doctrine  is  sound  and  rational,  that 
so  long  as  Congress  does  not  exercise  a  discretionary  power 
given  to  it  by  the  constitution,  the  laws  of  the  States  on  such 
subjects  are  legitimate  and  obligatory ;  but  that  they  are  super- 
seded by  the  laws  of  Congress,  whenever  that  body  thinks  it 
proper  to  exercise  such  discretionary  power.  This  has  hap- 
pened very  lately  in  the  provisions  respecting  pilots :  the  sanc- 
tion of  Congress  has  been  given  to  the  quarantine  laws  of  the 
several  States :  it  has  been  adjudged,  that  they  had  the  right  to 
naturalize  aliens,  until  Congress  had  passed  a  general  law  on 
that  subject,  and  that,  from  that  time,  the  right  ceased. 

Some  difficulties  may  be  suggested  respecting  the  practica- 
bility of  applying  the  provisions  of  a  bankrupt  law  to  corpora- 
tions ;  but  it  is  believed  that  they  may  be  easily  surmounted. 

There  are  some  acts,  considered  by  the  English  laws  as  acts 
of  bankruptcy,  which  could  not  be  done  by  a  corporation.  The 
only  consequence  would  be  that,  since  the  act  could  not  be  done, 
the  law  in  that  respect  could  not  be  applied  to  the  incorporated 
banks.  But  Congress  is  not  at  all  bound  by  the  special  provi- 
sions of  the  English  bankrupt  laws.  It  is  generally  authorised 
to  pass  laws  on  the  subject  of  bankruptcies ;  and  it  may  there- 
fore define  what  shall  be  considered  as  acts  of  bankruptcy,  and 
adapt  the  definition  to  the  object  in  view.  It  has  already  been 


100 

suggested  that  nothing  more  was  wanted  in  reference  to  banks, 
than  to  make  it  an  act  of  bankruptcy  for  all  those  who  issue 
paper  money,  to  refuse  for  a  certain  length  of  time  to  redeem  it 
in  specie. 

There  are  also  some  penalties,  which  are  inapplicable  to  cor- 
porations, and  from  which  they  would  of  course  be  exempted. 
But  there  is  a  point  which  deserves  consideration.  No  bank- 
rupt law  would  be  passed  in  this  age,  and  in  this  country,  which 
would  condemn  a  bankrupt  to  death.  By  parity  of  reasoning, 
it  may  be  insisted  that  the  act  of  Congress,  which  will  not  in- 
flict the  pain  of  death  on  the  natural  person,  ought  not  to  kill, 
or,  in  other  words,  to  dissolve  the  artificial  body.  This  may  be 
granted :  the  power  of  dissolving  may  be  left  to  the  State  which 
created.  The  essential  object  of  a  bankrupt  law,  with  respect 
to  the  creditor,  is  to  preserve  from  dilapidation  the  property  in 
the  possession  of  his  debtor,  and  to  make  an  equal  division  of  it 
amongst  all  the  creditors.  This  may  be  attained,  without  put- 
ting to  death  the  person,  or  dissolving  the  corporate  body  (z). 


(z)  The  establishment  of  a  Mint  in  New  York  would  have  a  tendency  to  sus- 
tain the  currency.  Foreign  coins  are  generally  exported  in  preference  to  those  of 
the  United  States.  A  very  considerable  proportion  of  the  foreign  gold  and  silver 
coins,  which  pass  through  the  banks  of  the  city  of  New  York,  would  be  converted 
into  American  coins,  if  it  could  be  done  without  the  expense,  risk,  delay,  and  incon- 
venience of  sending  them  to  Philadelphia.  The  practical  injury  is  much  greater 
than  may  be  generally  supposed.  It  must  not  be  forgotten  that  New  York  is  the 
principal  place  of  importation,  and  still  more  so  of  the  exportation,  of  the  precious 
metals;  and  that  it  is  also,  as  being  the  most  exposed,  that  which  it  is  most  impor- 
tant to  protect  against  the  danger  of  a  suspension  of  specie  payments. 


APPENDIX. 

DOCUMENTS  RESPECTING  THE  RESUMPTION  OF  SPECIE 
PAYMENTS  IN  THE  YEAR  1838. 


CIRCULAR. — To  the  principal  Banks  in  the  United  States. 

New  York,  August  18th,  1837. 

Sir, — At  a  general  meeting  of  the  officers  of  the  banks  of  the  city  of  New- 
York,  held  on  the  15th  of  this  month,  the  following  resolution  was  unani- 
mously adopted,  viz : 

Resolved,  That  a  committee  be  appointed  to  correspond  with  such  banks 
in  the  several  States  as  they  may  think  proper,  in  order  to  ascertain  at  what 
time  and  place  a  Convention  of  the  principal  banks  should  be  held,  for  the 
purpose  of  agreeing  on  the  time  when  specie  payments  should  be  resumed, 
and  on  the  measures  necessary  to  effect  that  purpose. 

Having  been  appointed  a  committee  in  conformity  with  that  resolution, 
we  beg  leave  to  call  your  attention  to  the  important  subject  to  which  it  refers. 

The  suspension  of  specie  payments  was  forced  upon  the  banks  imme- 
diately by  a  panic  and  by  causes  not  under  their  control,  remotely  by  the 
unfortunate  coincidence  of  extraordinary  events  and  incidents,  the  ultimate 
result  of  which  was  anticipated  neither  by  Government  or  by  any  part  of  the 
community. 

But  it  is  nevertheless  undeniable,  that,  by  accepting  their  charters,  the 
banks  had  contracted  the  obligation  of  redeeming  their  issues  at  all  times 
and  under  any  circumstances  whatever;  that  they  have  not  been  able  to 
perform,  that  engagement;  and  that  a  depreciated  paper,  differing  in  value 
in  different  places,  and  subject  to  daily  fluctuations  in  the  same  place,  has 
thus  been  substituted  for  the  currency,  equivalent  to  gold  or  silver,  which, 
and  no  other,  they  were  authorised  and  had  the  exclusive  right  to  issue. 

Such  a  state  of  things  cannot,  and  ought  not,  to  be  tolerated  any  longer  than 
an  absolute  necessity  requires  it.  We  are  very  certain  that  you  unite  with 
us  in  the  opinion,  that  it  is  the  paramount  and  most  sacred  duty  of  the  banks 
to  exert  every  effort,  to  adopt  every  measure  within  their  power,  which  may 
promote  and  accelerate  the  desired  result;  and  that  they  must  be  prepared 
to  resume  specie  payments  within  the  shortest  possible  notice,  whenever  a 
favorable  alteration  shall  occur  in  the  rate  of  foreign  exchanges. 

"We  are  quite  aware  of  the  difficulties  which  must  be  surmounted,  and  of 
the  impropriety  of  any  premature  attempt.  No  banking  system  could  in- 
deed be  tolerated  which  was  not  able  to  withstand  the  ordinary  and  una- 
voidable fluctuations  of  exchange.  But  the  difference  is  great  between  con- 
tinuing and  resuming  specie  payments :  and  we  do  not  believe,  that  the 
banks  in  the  United  States  can,  without  running  the  imminent  danger  of 
another  speedy  and  fatal  catastrophe,  resume  such  payments  before  the 
foreign  debt  shall  have  been  so  far  lessened  or  adjusted,  as  to  reduce  the  rate 
of  exchanges  to  true  specie  par,  and  the  risk  of  an  immediate  exportation  of 
the  precious  metals  shall  have  thus  been  removed. 


102 

The  appearances  in  that  respect  have  become  more  flattering;  and  it  is 
not  improbable  that  the  expected  change  may  take  place  shortly  after  the 
next  crop  of  our  principal  article, of  exports  shall  begin  to  operate.  Yet  we 
are  sensible  that  we  must  not  rely  on  conjectures,  and  that  the  banks  cannot 
designate  the  time  when  they  may  resume,  before  the  ability  to  sustain  specie 
payments  shall  have  been  ascertained  by  the  actual  reduction  in  the  rate  of 
the  exchanges. 

But  even  when  the  apprehension  of  a  foreign  drain  of  specie  shall  have 
ceased,  the  great  object  in  view  cannot  be  effected  without  a  concert  of  the 
banks  in  the  several  sections  of  the  Union.  Those  of  this  city  had  the  mis- 
fortune to  be,  with  few  exceptions,  the  first  that  were  compelled  to  declare 
their  inability  to  sustain,  for  the  time,  specie  payments.  It  appears  that  it 
became  absolutely  necessary  for  the  other  banks  to  pursue  the  same  course; 
and  it  would  be  likewise  impracticable  for  those  of  any  particular  section  to 
resume  without  a  general  co-operation  of  at  least  the  principal  banks  of  the 
greater  part  of  the  country.  A  mutual  and  free  communication  of  their  re- 
spective situations,  prospects  and  opinions,  seems  to  be  a  necessary  prelimi- 
nary step,  to  be  followed  by  a  Convention  at  such  time  and  place  as  may  be 
agreed  upon. 

As  relates  to  the  banks  of  this  city,  we  are  of  opinion  that,  provided  the 
co-operation  of  the  other  banks  is  obtained,  they  may,  and  ought  to,  we 
should  perhaps  say  that  they  must,  resume  specie  payments  before  next 
spring,  or,  to  be  more  precise,  between  the  first  of  January  and  the  middle  of 
March  1838. 

Both  the  time  and  place  of  meeting  in  Convention  must  of  course  be  de- 
termined in  conformity  with  the  general  wishes  of  the  banks.  In  order  to 
bring  the  subject  in  a  definite  shape  before  you,  we  merely  suggest  the  latter 
end  of  October  as  the  proper  time,  and  this  city  as  the  most'eiigible  place 
for  the  proposed  Convention. 

A  sufficient  time  will  have  then  elapsed  to  enable  us  to  judge  of  the  mea- 
sures which  Congress  may  adopt  in  reference  to  the  subject.  Whatever 
may  be  its  action  on  the  currency,  the  duty  of  resuming  remains  the  same, 
and  must  be  performed  by  the  banks.  If  any  thing  indeed  can  produce  an 
effect  favorable  to  their  views,  it  will  be  the  knowledge  of  their  being  sin- 
cerely and  earnestly  engaged  in  effecting  that  purpose.  An  early  indication 
of  the  determination  of  the  banks  will  have  a  beneficial  influence,  by  making 
them  all  aware  of  the  necessity  of  adopting  the  requisite  preliminary  mea- 
sures; and  the  information  is  also  due  to  all  the  varied  interests  of  the 
country. 

We  address  this  letter  to  no  other  bank  in  your  city  or  State  than  those 
herein  designated  ;  and  we  pray  you  to  collect  and  ascertain  the  opinions  of 
the  others,  and  to  communicate  the  general  result  as  early  as  practicable. 
We  have  the  honor  to  be,  &c. 

ALBERT  GALLATIN, 
GEORGE  NEWBOLD, 
C.  W.  LAWRENCE, 

Committee. 


Extract  from  the  Minutes  of  the  Board  of  Delegates  of  the  Banks  of  the  City 
and  Incorporated  Districts  of  the  County  of  Philadelphia. 

At  a  special  meeting  of  the  delegates  of  all  the  banks  in  the  city  and  the 
incorporated  districts  of  the  county  of  Philadelphia,  held  on  Tuesday  eve- 
ning, August  29th,  1837,  the  following  preamble  and  resolutions  were,  on 
motion,  unanimously  adopted,  viz : 

Whereas  a  proposition  has  been  submitted  to  this  meeting,  on  behalf  of  the 


103 

officers  of  the  banks  of  the  city  of  New  York,  for  calling  a  convention  of  dele- 
gates from  the  principal  banks  in  the  United  States,  to  be  held  in  New  York 
in  the  month  of  October  next,  for  the  purpose  of  adopting  measures  for  the 
resumption  of  payments  in  specie  by  the  banks:  after  mature  reflection  upon 
this  proposal,  and  the  reasons  assigned  for  it,  this  meeting  has  not  been  able 
to  adopt  the  views  presented  in  the  communication;  and  they  deem  it  proper 
to  state  briefly  and  without  reserve  the  reasons  of  their  dissent. 

The  banks  of  Philadelphia  fully  concur  with  the  banks  of  New  York  in 
their  anxiety  for  a  general  resumption  of  specie  payments  with  the  least 
practicable  delay,  and  they  would  cordially  unite  in  the  proposed  convention 
if  they  thought  it  at  all  adapted  to  promote  that  object.  But  they  believe 
that  the  general  resumption  of  specie  payments  depends  mainly,  if  not  ex- 
clusively, on  the  action  of  Congress — the  body  charged  with  the  general 
power  over  commerce,  and  the  exclusive  power  over  the  coinage,  and  with- 
out whose  co-operation,  all  attempts  at  a  general  system  of  payments  in  coin 
throughout  this  extensive  country  must  be  partial  and  temporary. 

That  body  is  on  the  point  of  assembling,  being  expressly  convened  to 
deliberate  on  this  very  subject. 

Now,  the  banks  of  Philadelphia  are  of  opinion,  that,  at  such  a  moment,  a 
convention  of  the  banks  of  the  United  States  would  be  superfluous  at  least, 
if  not  injurious.  It  seems  superfluous,  because  the  banks  can  do  nothing, 
and  ought  to  promise  nothing,  until  they  know  what,  the  action  of  Congress 
will  be.  The  communication  from  New  York  mentions  a  precise  period 
when  the  banks  of  New  York  may,  and  ought  to,  and  must,  resume  specie 
payments.  With  every  respectful  deference  to  the  better  judgment  of  the 
signers  of  the  communication,  the  banks  of  Philadelphia  are  not  prepared  to 
make  any  pledges,  nor  to  name  any  time,  for  the  resumption,  because  they 
think  that  the  whole  matter  depends  much  more  on  Congress  than  on  them- 
selves. They  do  not  wish  to  excite  expectations  which  they  may  not  be 
able  to  realize ;  and  they  believe  that  a  premature  effort  might  be  followed 
by  a  relapse,  which  would  be  permanently  fatal  to  the  credit  of  our  banking 
institutions.  If,  moreover,  such  a  convention,  composed  of  delegates  from 
sections  of  the  country  of  very  unequal  resources,  and  in  very  different  stages 
of  preparation,  should  not  agree  upon  any  general  system  of  action,  these 
very  discussions  would  weaken  confidence  in  the  convention ;  while,  if  they 
could  agree,  their  union  upon  any  course  of  measures  might  not  recommend 
that  course  to  public  favor,  because  it  would  be  considered  as  one  specially 
favorable  to  the  interests  of  banks  themselves.  It  is  thus  that  the  convention 
might  prove  not  merely  useless,  but  injurious.  The  mere  assemblage  of  a 
body,  more  numerous  probably  than  Congress  itself,  meeting  at  the  same 
time,  deliberating  on  the  same  subject,  might  easily  be  made  to  wear  the 
appearance  of  an  attempt  to  interfere  with,  or  to  influence  the  movements  of, 
that  body.  The  avowed  object  of  the  convention  too — to  fix  a  time  for  re- 
suming specie  payments  independent  of  Congress — might  have  the  effect  of 
misleading  both  Congress  and  the  country.  If  the  resumption  be  practicable 
by  the  banks  alone,  Congress  might  consider  itself  under  no  obligation  to  in- 
terpose— a  very  erroneous  and  dangerous  conclusion.  If  the  banks  confi- 
dently name  a  day  when  they  not  only  may,  but  must  resume,  whatever 
be  the  action  of  Congress,  or  the  state  of  the  country,  or  the  condition  of  the 
foreign  exchanges,  they  promise  what  they  may  not  be  able  to  perform,  and 
so  lose,  rather  than  gain  credit  by  the  effort.  A  more  prudent  course,  in  the 
deliberate  judgment  of  this  meeting,  would  be  for  the  banks  in  the  United 
States  to  continue  steadily  their  present  preparations  for  resuming  specie 
payments ;  to  wait  quietly  the  action  of  Congress,  without  interference  of  any 
kind ;  and  be  ready  to  give  an  immediate  and  zealous  co-operation  in  any 
measures  which  that  body  may  adopt  for  the  common  benefit  of  the  coun- 
try. Under  these  impressions,  they  are  constrained  to  adopt  the  following 
resolutions : 


104 

Resolved,  That,  in  the  opinion  of  the  banks  of  Philadelphia,  it  Is  inexpedi- 
ent, at  this  time,  to  appoint  delegates  to  the  proposed  convention. 

Resolved,  That  a  copy  of  these  resolutions,  certified  hy  the  President  and 
Secretary  of  this  meeting,  he  forwarded  to  the  banks  of  New  York,  with  an 
assurance,  that  while  the  banks  of  Philadelphia  reluctantly  differ  from  those 
of  New  York  as  to  the  specific  measure  proposed,  they  do  ample  justice  to 
the  zeal  and  patriotism  which  have  dictated  it;  that  they  are  not  the  less 
auxious  to  accomplish  the  common  object ;  and  that,  if  the  proposed  conven- 
tion should  suggest  any  thing  which  promises  to  be  useful  to  the  country,  the 
banks  of  Philadelphia  will  as  cordially  co-operate  in  executing  it  as  if  they 
had  been  fully  represented  in  the  convention. 
Extract  from  the  Minutes : 

W.  MEREDITH,  President. 

J.  B.  TREVOR,  Secretary. 


CIRCULAR. —  To  the  principal  Banks  in  the  United  States. 

New  York,  Oct.  20th,  1837. 

Sir, — At  a  general  meeting  of  the  officers  of  the  banks  of  the  city  of  New 
York,  held  on  the  10th  of  this  month,  the  committee  appointed  on  the  15th  of 
August  last,  laid  before  the  meeting  the  communications  received  from  banks 
in  the  several  States,  in  answer  to  the  circular  of  the  committee  of  the  18th 
of  August  last. 

Whereupon,  it  was  unanimously  "Resolved,  That  the  banks  in  the  several 
States  be  respectfully  invited  to  appoint  delegates  to  meet  on  the  27th  day  of 
November  next,  in  the  city  of  New  York,  for  the  purpose  of  conferring  on 
the  time  when  specie  payments  may  be  resumed  with  safety,  and  on  the 
measures  necessary  to  effect  that  purpose." 

We  pray  you  to  communicate  this  letter  to  such  other  banks  in  your 
State  as  you  may  deem  proper  ;  and  leaving  the  number  of  delegates  entirely 
to  yourselves,  we  only  beg  leave  to  urge  the  importance  of  having  every 
State  represented. 

We  have  the  honor  to  be  respectfully  your  most  obedient  servants, 

ALBERT  GALLATIN, 
GEORGE  NEWBOLD, 
C.  W.  LAWRENCE, 

Committee. 


Extract  from  the  Minutes  of  the  Proceedings  of  the  Bank  Convention,  held 
at  New  York  on  the  27th  November  to  the  2d  December  1837. 

Present — Delegates  of  Banks  from  the  following  States,  viz. :  Maine, 
Vermont,  New-Hampshire,  Massachusetts,  Rhode  Island,  Connecticut, 
New  York,  New  Jersey,  Pennsylvania,  Delaware,  District  of  Columbia, 
Virginia,  North  Carolina,  South  Carolina,  Georgia,  Ohio,  Kentucky,  and 
Indiana. 

Thursday,  November  30,  1837. 

The  Convention  met  according  to  adjournment. 

Mr.  Van  Ness,  from  the  committee  appointed  to  report  upon  the  proper 
measures  to  be  pursued  "  to  effect  a  general  resumption  of  specie  pay- 
ments," &c.  reported  the  following  Resolutions,  and  requested  that  they 
should  be  considered  a  Report  in  part : 

1st.  Resolved,  That  it  be  recommended  to  the  Banks  of  the  several  States 


105 

to  resume  specie  payments  on  the  first  day  of  July  next,  without  precluding 
an  earlier  resumption  on  the  part  of  such  banks  as  may  find  it  necessary  or 
deem  it  proper. 

2d.  Resolved,  That  a  committee  of delegates  be  appointed,  whose 

duty  it  shall  be  to  correspond  with  the  several  banks,  and  to  collect  all  the 
necessary  information  concerning  their  respective  situations,  and  the  rate  of 
foreign  exchanges,  and  who  shall  be  authorised,  if  they  deem  it  necessary,  to 
call,  on  giving  thirty  days'  notice,  another  meeting  of  this  Convention,  inviting 
the  attendance  of  delegates  from  the  banks  of  the  States  not  represented  at 
this  meeting. 

3d.  Resolved,  That  (notwithstanding  the  foregoing  resolutions)  it  will  be 
the  duty  of  each  and  every  bank  in  the  United  States  to  resume  specie  pay- 
ments at  the  earliest  period  when  their  own  means  and  the  state  of  the  ex- 
changes will  enable  them  to  do  so  with  a  proper  regard  to  their  own  safety, 
and  the  interests  of  the  community. 

On  motion  of  Mr.  Eyre  of  Pennsylvania,  the  resolutions  were  laid  on  the 
table,  to  enable  him  to  present  a  Report  and  Resolutions  from  a  minority  of 
the  same  committee. 

Mr.  Eyre  then  submitted  the  following  Report  and  Resolutions  : 

The  minority  of  the  committee,  to  whom  the  resolution  of  Mr.  Howard,  of 
Maryland,  was  referred,  submit  the  following  Report  and  Resolutions,  as  ex- 
pressing briefly  their  views  upon  the  subject  referred  : 

Thatfthey  have  proceeded  in  their  deliberations  upon  the  subject  commit- 
ted to  them,  under  a  deep  sense  of  its  momentous  importance  in  relation  to 
the  particular  interests  represented  in  this  Convention  ;  still  more  to  the  gen- 
eral  welfare ;  with  unaffected  respect  to  public  expectation,  and  a  thorough 
conviction  that  nothing  can  excuse  the  continuance  of  suspension  after  the 
necessity  which  demands  it  shall  have  ceased.  It  will  not  be  denied  that  the 
banks  are  prompted  by  their  own  interest  to  a  fesumption  at  the  earliest  pos- 
sible period,  when  it  is  known  that  since  the  month  of  May  last,  they  have 
been  steadily  contracting  their  business  to  an  unprecedented  amount,  and  to 
the  utmost  limit  short  of  general  bankruptcy. 

It  will  be  conceded  that  the  resumption,  accompanied  by  a  revival  of  con- 
fidence, to  be  more  and  more  firmly  reinstated,  is  demanded  by  every  con- 
sideration of  the  public  welfare ;  and  the  banks,  sustained  as  they  have  been 
in  the  face  of  penalties  and  forfeitures,  by  a  candid,  just  and  generous  com- 
munity, cannot  fail  to  be  alive  to  the  duty  of  cultivating  the  favor,  and  re- 
garding most  respectfully  the  opinion  and  general  expectation,  of  their  fel- 
low citizens.  Nor  can  it  be  overlooked,  that,  as  their  justification  is,  and  has 
been  from  the  beginning,  necessity  and  self-preservation,  for  the  country  as 
well  as  themselves,  it  will  lose  its  force  whenever  the  apprehended  dangers 
are  at  an  end. 

It  will  be  conceded  that  an  efficient  and  maintained  recurrence  to  specie 
payments  requires  a  simultaneous  action  throughout  the  country,  and  it  is 
admitted  on  all  hands,  that  your  resolves  will  be  only  advisory,  not  com- 
pulsory. 

In  order  to  this,  the  restoration  of  domestic  exchanges  to  their  natural  and 
regular  condition  and  action  is  indispensable,  and  this  must  mainly  depend 
upon  the  ability  of  the  Southern  and  Western  States,  for  resumption  is  not  a 
measure  of  mere  volition. 

It  cannot,  therefore,  but  be  a  matter  of  much  regret,  that  in  your  delibera- 
tions, you  are  not  assisted  by  the  counsels  of  delegates  from  the  important 
points  of  Louisiana,  Mississippi,  Alabama,  Tennessee,  and  some  other 
States. 

Yet  the  ability  of  these  States,  and  their  willingness  to  concur  and  co-ope- 
rate with  you  in  every  reasonable  and  judicious  measure  which  you  may  re- 
commend, cannot  be  questioned,  although  the  want  of  certain  information 

14 


106 

leaves  you  at  a  loss  to  know,  with  desirable  precision,  at  what  period,  or  to 
what  amount,  their  staples,  on  which  their  ability  depends,  will  be  brought 
into  activity. 

In  regard  to  the  question  of  resumption,  the  first  thing  which  presents  it- 
self to  our  consideration  is,  the  time  when  it  is  to  be  attempted. 

Shall  it  be  now  ? 

In  the  present  condition  of  foreign  and  domestic  exchanges,  it  is  believed 
that  an  immediate  resumption  of  specie  payments  is  utterly  impracticable; 
none,  even  the  most  sanguine,  have  ever  been  heard  to  impugn,  or  even  to 
express  doubt  of  the  undeniable  truth  of  this  position.  This  measure  will 
therefore  be  passed  by. 

Shall  it  then  be  at  a  future  period,  now  to  be  fixed  by  this  Convention  ? 

Against  such  a  measure,  many  objections  exist  in  the  minds  of  the  minori- 
ty of  your  committee,  some  of  which  will  be  stated. 

No  one  can  foretell  with  satisfactory  probability,  when  our  domestic  ex- 
changes will  be  restored  to  order  and  regularity. 

It  must  depend  upou  the  value  and  quantity  of  the^  staple  products  of  the 
Southern  and  Western  States,  and  the  same  dependence  attaches  to  our  fo- 
reign Exchanges. 

Until  our  foreign  debt  shall  have  been  reduced,  the  present  high  rate  of  ex- 
change must  necessarily  continue  ;  so  long  too,  the  demand  for  specie,  for 
the  purposes  of  remittances,  must  last,  and  while  it  lasts,  the  opening  of  your 
vaults  would  be  to  impair  your  means,  and  to  drain  the  country  of  its  specie 
to  a  ruinous  extent.  Again,  to  fix  now  a  period  of  specie  payments,  would  be 
to  count  with  dangerous  confidence  upon  speculative  opinions  and  contin- 
gencies. 

Who  can  assure  us  that,  at  a  day  not  so  remote  as  to  be  for  that  reason 
inadmissible,  our  foreign  debt  will  be  sufficiently  liquidated  to  bring  down 
exchange  and  check  the  exportation  of  specie  ? 

Who  can  say  what  is  to  be  the  quantity  or  prices  of  our  staples  of  this 
year's  crop,  in  the  foreign  market  ? 

There  must  be  much  allowance  for  the  time  necessary  for  getting  them  there, 
and  for  their  sale  also — much,  too,  as  regards  their  value,  to  the  vacillation 
of  prices,  and  to  the  force  of  the  foreign  policy  by  which  it  has  been  attempt- 
ed, and  with  too  much  success,  to  break  them  down. 

Besides  these  considerations,  we  cannot  but.  look  with  apprehension  to  the 
insufficiency  of  the  domestic  supply  of  bread  stuffs. 

That  there  will  be  a  large  importation  is  presumed,  and  to  that  extent  your 
means  will  be  impaired,  the  foreign  debt  kept  stationary,  or  possibly  in- 
creased. Again,  if  the  reliance  upon  contingencies  should  embolden  you  to 
fix  a  day,  and  in  it  you  should  be  disappointed,  you  will  have  repeated  the 
distress  occasioned  by  severe  curtailment,  without  accomplishing  the  object 
proposed,  and  with  certain  ruin  to  many.  You  will  shake  public  confidence 
in  your  disposition,  or  your  ability,  to  its  foundation. 

How  and  when  can  you  hope  to  restore  it  ? 

Again  :  In  the  interval  which  would  elapse  until  the  arrival  of  the  period 
you  may  fix  upon,  may  it  not  happen  that  in  some  instances  there  will  be  an 
expansion  of  circulation,  which  will  aggravate  public  calamity?  Then,  too, 
may  not  the  measure  now  under  consideration  tempt  to  large  importation  of 
foreign  goods  by  your  own  merchants  ?  May  it  not  encourage  the  foreign 
manufacturer  to  force  his  goods  upon  the  country,  and  glut  the  market  ?  Ei- 
ther of  these  would  necessarily  keep  you  in  a  state  of  indebtedness  propor- 
tionally, and  to  keep  up  the  exchanges  ;  nor  is  the  ardent  commercial  spirit 
of  enterprise  round  the  Cape  to  China,  &c.  to  be  lost  sight  of. 

Afford  the  specie,  and  it  will  be  extended  to  a  dangerous  excess,  for  the 
temptation  is  great. 

Again  :  If  you  fix  an  early  day  of  resumption,  you  increase  the  hazard  of 


107 

disappointment.  If  you  fix  upon  a  distant  day,  may  it  not  happen  that  you 
postpone  resumption  beyond  the  period  when  in  justice  you  ought  to  have 
resumed  ? 

Finally  :  Are  you  prepared  to  dismiss  the  hope  that  Congress  will  aid  in 
relieving  the  country  ? 

Entertaining  these  views,  briefly  expressed,  but  which  your  intelligence  will 
carry  out,  the  minority  of  the  committee  cannot  advise  the  determination,  at 
this  time,  of  the  precise  period  when  the  resumption  of  specie  payments  may 
be  effected.  Natural  causes  are  in  operation,  which,  by  judicious  action,  you 
may  assist,  but  you  may  retard  their  progress  by  rash  and  'imprudent  at- 
tempts to  force  them ;  and  you  will,  moreover,  be  able  to  assure  yourselves 
and  the  public  that  the  resumption,  so  anxiously  desired  by  all,  will  be  ac- 
complished as  soon  as  it  is  practicable,  and  then  certainly. 

In  accordance  with  what  has  been  said,  the  minority  of  your  committee 
offer  the  following  resolutions  : 

Resolved,  That  this  Convention  will  appoint  a  committee  of  —  delegates, 
to  whom  shall  be  confided  the  important  trust  of  diligently  inquiring,  and  de- 
liberately judging,  when  the  condition  and  circumstances  of  the  country  shall 
have  been  such  as  to  justify  an  early  resumption  of  specie  payments  by  the 
banks,  at  a  fixed  period. 

2d.  That  when  the  said  committee  shall,  in  the  exercise  of  sound  discre- 
tion, be  satisfied  that  such  period  has  arrived,  it  shall  be  their  duty  to  make 
it  known  to  the  presiding  officer  of  this  Convention,  and  that  it  shall  be  his 
duty  thereupon,  to  summon  a  meeting  of  this  Convention,  with  due  notice  to 

its  members,  at  ,  to  the  end  that  the  measure  of  resumption  may 

be  promptly  adopted. 

Saturday,  December  2d,  1837. 

The  Convention  met,  according  to  adjournment,  when  the  following  reso- 
lutions were  adopted  : 

1st.  Resolved,  That  the  Convention  entertains  a  deep  anxiety  and  a  firm 
determination  to  accomplish  the  resumption  of  specie  payments  at  the  earli- 
est period  when  it  may  be  permanently  practicable. 

2d.  Resolved,  That  in  the  opinion  of  this  Convention  the  present  circum- 
stances of  the  country  are  not  such  as  to  make  it  expedient  or  prudent  now  to 
fix  a  day  for  the  resumption  of  specie  payments. 

3d.  Resolved,  That  when  the  Convention  terminates  its  present  session,  it 
shall  be  adjourned  to  meet  in  the  city  of  New  York,  on  the  second  Wed- 
nesday of  April  next,  for  the  purpose  of  considering,  and  if  practicable  de- 
termining, upon  the  day  when  specie  payments  may  be  resumed. 

4th.  Resolved,  That  this  Convention  strongly  recommends  to  all  the  banks 
in  the  United  States  to  continue,  by  proper  measures,  to  prepare  themselves 
for  a  return  to  specie  payments  within  the  shortest  practicable  period,  after 
the  next  meeting  of  the  Convention. 

5th.  Resolved,  That  the  banks  in  those  States  not  now  represented,  be 
earnestly  requested  to  send  delegates  to  the  adjourned  meeting  of  this  Con- 
vention, and  that  the  several  delegates  from  all  the  States  be  desired  to  pro- 
cure all  such  information  in  regard  to  the  condition  of  the  banks  in  their  re- 
spective States,  as  may  be  attainable. 


At  a  meeting  of  the  Officers  of  the  Banks  of  the  City  of  New- York,  held 
on  the  15th  December,  1837 — 

The  delegates  appointed  to  represent  the  said  Banks  in  the  Convention  of 
the  Banks  of  the  several  States,  which  met  at  New- York,  on  the  27th  of 


108 

November  last,  and  on  the  following  days,  to  the  1st  of  this  month,  made  the 
following  report,     Whereupon  it  was 

Resolved,  That  the  said  report  be  accepted  and  published. 

PETER  STAGG,    Chairman. 

W.  M.  VERMILYE,  Secretary. 

REPORT. 

The  delegates  appointed  to  represent  the  Banks  of  the  city  of  New- York, 
in  the  general  Bank  Convention,  held  in  the  said  city,  on  the  27th  of  No- 
vember, 1837,  respectfully  submit,  together  with  a  copy  of  the  proceedings 
of  the  Convention,  the  following  report,  explanatory  of  their  votes  in  that 
body  : 

The  banks  of  the  several  States  have  been  vested  with  the  power,  and,  in 
most  of  the  States,  especially  in  that  of  New- York,  with  the  exclusive  pri- 
vilege of  issuing  a  paper  currency,  on  the  express  condition,  that  they  should 
at  all  times,  and  whenever  the  demand  was  made,  redeem  it  in  gold  or  silver, 
the  only  constitutional  legal  tender  or  currency,  with  which  debts  may  be 
discharged.  Nothing,  therefore,  but  the  inability  to  perform  the  condition, 
can  justify  a  suspension  of  specie  payments  on  the  part  of  the  Banks. 

The  immediate  causes  which  thus  compelled  the  banks  of  the  city  of 
New- York  to  suspend  specie  payments,  on  the  10th  of  May  last,  are  well 
known.  The  simultaneous  withdrawing  of  the  large  public  deposits,  and  of 
excessive  foreign  credits,  combined  with  the  great  and  unexpected  fall  in  the 
price  of  the  principal  article  of  our  exports,  with  an  import,  of  corn  and  bread 
stuffs  such  as  had  never  before  occurred,  and  with  the  consequent  inability 
of  the  country,  particularly  of  the  South- Western  States,  to  make  the  usual 
and  expected  remittances,  did,  at  one  and  the  same  time,  fall  principally  and 
necessarily  on  the  greatest  commercial  emporium  of  the  Union.  After  a 
long  and  most  arduous  struggle,  during  which  the  banks,  though  not  alto- 
gether unsuccessfully,  resisting  the  imperative  foreign  demand  for  the  precious 
metals,  wrere  gradually  deprived  of  a  great  portion  of  their  specie,  some 
unfortunate  incidents  of  a  local  nature,  operating  in  concert  with  other  pre- 
vious exciting  causes,  produced  distrust  and  panic,  and  finally  one  of  those 
general  runs,  which,  if  continued,  no  banks  that  issue  paper  money  payable 
on  demand,  can  ever  resist;  and  which  soon  put  it  out  of  the  power  of  those 
of  this  city  to  sustain  specie  payments.  The  example  was  followed  by  the 
banks  throughout  the  whole  country,  with  as  much  rapidity  as  the  news  of 
the  suspension  in  New- York  reached  them,  without  waiting  for  an  actual 
run,  and  principally,  if  not  exclusively,  on  the  alleged  grounds  of  the  effects 
to  be  apprehended  from  that  suspension.  Thus,  whilst  the  New- York  city 
banks  were  almost  drained  of  their  specie,  those  in  other  places  preserved 
the  amount  which  they  held  before  the  final  catastrophe. 

If  the  share  of  blame,  which  may  justly  be  imputed  to  the  banks,  be  ana- 
lyzed, it  will  be  found  to  consist  in  their  not  having,  at  an  early  period,  duly 
appreciated  the  magnitude  of  the  impending  danger,  and  taken,  in  time,  the 
measures  necessary  to  guard  against  it ;  in  their  want  jof  firmness  when  the 
danger  was  more  apparent  and  alarming;  in  yielding  to  the  demands  for 
increased,  or  continued  bank  facilities,  instead  of  resolutely  curtailing  their 
loans,  and  lessening  their  liabilities.  Whether  the  most  acute  foresight,  and 
the  most  powerful  exertions,  could  have  enabled  the  banks  to  have  averted 
the  blow,  is  a  question  which  we  are  not  called  upon  to  discuss. 

Whatever  explanations  maybe  given  concerning  the  past,  since  nothing 
but.  actual  inability  can  be  alleged  as  an  excuse  for  having  ceased  to  perform 
the  express  condition  on  which  the  privilege  to  issue  a  paper  currency  had 
been  granted,  it  is  equally  obvious,  that  nothing  can  justify  a  protracted 
suspension,  but  the  continued  inability  to  resume  and  sustain  specie  pay- 
ments. This  principle  is  indeed  so  evident,  that,  as  an  abstract  proposition, 
jts  correctness  is  universally  admitted:  and  all  agree  in  expressing  their 


109 

"  thorough  conviction,  that  nothing  can  excuse  the  continuance  of  suspension, 
after  the  necessity  which  demands  it  shall  have  ceased."  But,  in  enume- 
rating the  objections  to  an  early  resumption,  or  to  fixing  a  day  for  it,  the 
discussion  was  not  confined  to  arguments  derived  from  a  supposed  continued 
inability  on  the  part  of  the  banks  to  resume  ;  but  ah  appeal  was  also  made 
to  considerations  of  presumed  expediency,  connected  with  the  general  si- 
tuation of  the  country,  and  on  which  the  simple  fact  of  the  ability  of  the 
banks  to  resume,  and  sustain  specie  payments,  does  not  depend. 

It  is  but  too  well  known,  that  a  general  suspension  of  specie  payments  by 
the  banks  is  not  confined  to  them  alone,  but  extends  instantaneously  to  the 
whole  community.  As  they  had  substituted  their  paper  for  the  metallic 
currency,  and  as  even  the  portion  of  specie  which  still  circulated,  disappears 
at  once,  when  the  general  bank  suspension  takes  place,  the  depreciated  bank 
paper  currency  alone  remains,  both  as  the  only  medium  of  payment,  and, 
by  a  necessary  consequence,  as  the  practical  standard  of  value.  Thus,  by  a 
strange  anomaly,  whilst  the  courts  of  law  can  consider  nothing  but  gold  or 
silver  as  the  legal  payment  of  debts,  every  individual,  without  exception, 
who  is  not  compelled  by  process  of  law,  or  who  does  not  resort  to  the  tribu- 
nals for  redress,  pays  all  his  debts  with,  and  receives  nothing  in  payment 
but,  an  irredeemable,  depreciated  currency.  A  general  usage,  openly  at 
war  with  law,  usurps  its  place ;  and  the  few  cases  where  the  laws  are  en- 
forced, are  only  exceptions  to  the  universal  practice.  Instead  of  the  perma- 
nent and  uniform  standard  of  value  provided  by  the  constitution,  and  by 
which  all  contracts  were  intended  to  be  regulated,  we  have  at  once  fifty  dif- 
ferent and  fluctuating  standards,  agreeing  only  in  one  respect,  that  of  impair- 
ing the  sanctity  of  contracts.  Even  restrictive  and  penal  laws  are  openly 
and  daily  violated  with  impunity,  by  every  body,  in  circulating  notes  for- 
bidden by  law.  It  is  impossible  that  such  a  state  of  things  should  not  gradu- 
ally demoralize  the  whole  community ;  that  a  general  relaxation  in  the 
punctual  and  honorable  fulfilment  of  obligations  and  contracts,  should  not 
take  place  ;  that  that  which  operates  as  a  general  relief  law,  should  not  be 
attended  with  the  same  baneful  effects  which  have  always  attended  posi- 
tive laws  of  the  same  character ;  and  that,  if  the  present  illegal  system  be 
much  longer  continued,  the  commercial  credit  and  prosperity  of  the  country, 
and  more  particularly  of  this  city,  should  not  be  deeply  and  permanently 
injured. 

When  we  see  such  extensive,  general,  and,  we  may  say,  intolerable  evils, 
flowing  from  a  general  suspension  of  specie  payments  by  the  banks,  it  is 
monstrous  to  suppose  that,  if  they  are  able  to  resume,  and  sustain  such  pay- 
ments, they  should  have  any  discretionary  right  to  decide,  or  even  to  discuss, 
the  question,  whether  a  more  or  less  protracted  suspension  is  consistent  with 
their  own  views  of  "  the  condition  and  circumstances  of  the  country."  There 
would  be  no  limit  to  such  supposed  discretion.  Thus,  for  instance,  should 
the  hope  of  a  favorable  action  of  Congress  on  the  currency  be  still  alleged  as 
a  motive  for  delay,  would  not  this  be  tantamount  to  protracted  suspension  for 
an  indefinite  period  of  time  ? 

The  banks  are  bound  by  the  strongest  legal  and  moral  obligations  to  re- 
sume specie  payments  whenever  they  are  able  to  maintain  such  payments. 
It  is  the  paramount  duty  to  which  every  other  consideration  must  yield. 
Their  ability  to  perform  that  duty  is  the  only  question  which  they  have  a 
right  to  discuss,  and  which  they  are  bound  to  examine  with  the  utmost  care 
and  candor. 

Strictly  speaking,  the  power  to  issue  paper  money  should  cease  whenever 
the  express  condition  on  which  the  privilege  was  granted  cannot  be  per- 
formed. It  is  only  through  the  indulgence  of  the  Legislature,  and  of  the 
community,  that  the  banks  are  still  permitted,  for  a  while,  to  continue  their 
issues.  If  there  be,  indeed,  any  considerations  affecting  the  general  welfare, 
which  can  render  the  continuance  of  an  irredeemable  currency  desirable, 


110 

after  the  time  when  the  banks  are  or  shall  think  themselves  able  to  resume 
specie  payments,  the  application  for  a  further  protraction  must  come  from, 
the  parties  interested,  and  not  from  the  banks  ;  and  it  must  be  made,  not  to 
the  banks,  but  to  the  Legislature. 

It  was  urged,  that  some  respectable  merchants,  here  and  in  other  places, 
were  opposed  to  an  early  resumption.  During  the  late  trying  crisis,  some  of 
the  most  respectable  and  solvent  members  of  the  commercial  community  might 
have  been  under  the  necessity  of  requiring  some  indulgence,  at  least  in  point 
of  time.  But  there  is  not  one  of  those  honorable  men,  who  would  not  think 
himself  disgraced  and  degraded,  if,  after  having  obtained  the  requisite  time, 
he  delayed  the  fulfilment  of  his  engagements  a  single  day  after  he  had  be- 
come able  to  do  so.  That  which  they  require  from  the  banks  is,  therefore, 
unjust  and  unreasonable  :  for  they  ask  them  to  do  that,  from  which,  in  their 
own  case,  they  would  shrink  ;  and  which,  if  done  by  any  one  in  his  individ- 
ual capacity,  they  would  consider  as  disgraceful  and  dishonorable. 

It  was  indeed  insisted,  that  some  of  the  general  considerations  to  which  we 
have  alluded,  made  it  dangerous  for  the  banks  to  attempt  to  resume  specie 
payments.  \Ve  will  advert  to  all  the  objections  truly  of  that  character;  but 
deem  it  unnecessary  to  take  further  notice  of  that  founded  on  an  expected 
action  of  Congress,  or  to  dwell  on  those  clearly  arising  from  local  or  particu- 
lar interests,  such  as  the  want  of  extended  bank  accommodations,  and  the 
supposed  facilities  afforded  by  a  protracted  suspension  for  the  collection  of 
debts.  Yet,  we  must  not  be  understood  as  admitting  that  such  protraction 
would,  in  any  respect,  be  advantageous  to  the  community  at  large;  believ- 
ing, on  the  contrary,  as  we  do,  that  its  general  and  permanent  interests  would 
be  sacrifice-.!  to  temporary  ease  and  particular  classes,  should  the  suspension 
be  continued  any  longer  than  absolute  necessity  requires. 

Amongst  the  considerations  deemed  by  us  to  be  irrelevant  to  the  true  and 
only  question  before  the  banks,  that  most  strongly  urged  was  the  alleged 
necessity  of  a  previous  "  restoration  of  domestic  exchanges  to  their  natural 
and  regular  condition  and  order."  This  is  confounding  cause  and  effect. 
The  obligation  to  pay  specie,  is  the  check  which  regulates  the  exchanges 
and  prevents  them  from  rising  much  above  the  specie  par.  The  suspension 
of  specie  payments,  and  the  consequent  great  difference  in  value,  as  com- 
pared with  specie,  of  the  several  local  bank  currencies,  are  the  cause  of  the 
great  corresponding  inequalities  of  the  domestic  exchanges,  so  justly  com- 
plained of;  and  the  evil  cannot  otherwise  be  overcome,  than  by  a  general 
resumption  of  specie  payments.  If  A,  in  Philadelphia,  is  obliged  to  lose  ten 
per  cent.,  in  order  to  draw  his  funds  from  Nashville,  it  is  because  (whether 
owing  to  excess  in  circulation,  or  to  great  indebtedness,  is  immaterial)  the 
Tennessee  bank  currency  is  worth  ten  per  cent,  less  than  that  of  Philadel- 
phia. If  specie  payments  were  resumed  in  both  places,  he  would  lose,  at 
most,  two  or  three  per  cent,  on  the  exchange.  But  A  is  now  permitted,  by 
general  usage,  to  pay  his  debts  at  home  in  Philadelphia  bank  paper,  worth 
six  per  cent,  less  than  specie.  He  apprehends  that,  if  the  Philadelphia 
banks  should  resume  specie  payments  before  those  of  Tennessee,  being 
obliged  to  pay  his  own  debts  in  paper  equal  to  specie,  he  would  lose  16,  in- 
stead of  10  per  cent.,  on  the  Tennessee  exchange.  The  argument,  derived 
from  the  present  condition  of  domestic  exchanges,  resolves  itself,  therefore, 
into  one  of  expediency.  It  is  founded  on  the  inadmissible  supposition,  that 
in  order  to  accommodate  special  interests,  and  to  benefit  certain  classes,  the 
banks,  though,  from  their  situation  and  resources,  able  to  resume  specie  pay- 
ments, have  a  right  to  protract  the  suspension,  to  postpone  the  payment  of 
their  own  debts,  and  to  delay  the  performance  of  the  paramount  duty  they 
pwe  to  the  community  at  large,  of  restoring  a  currency  equal  to  gold  or 
silver. 

The  only  question,  on  which  the  convention  was  called  upon  to  deliberate, 
freing  the  ability  of  the  banks  to  resume  and  sustain  specie  payments,  it 


Ill 

appeared  to  the  delegates  of  both  the  city  and  country  banks  of  New  York, 
that  an  early  day  might  at  this  time  be  designated  for  that  purpose. 

In  their  first  circular  of  the  18th  of  August,  the  committee  of  corres- 
pondence of  the  city  banks  had  pointed  out  such  a  favorable  alteration  in  the 
rate  of  foreign  exchanges,  as  would  remove  the  danger  of  an  immediate  ex- 
portation of  the  precious  metals,  and  a  concert  on  the  part  of  the  principal 
banks  of  the  country,  as  the  only  requisites  for  resuming  with  safety. 

In  reference  to  the  first  point,  several  estimates  of  the  amount  of  foreign 
debt  still  due,  neither  provided  for,  nor  postponed,  and  which  probably  would 
be  demanded,  and  must  be  paid,  before  the  first  of  July  next,  were  alluded 
to  in  the  course  of  the  discussion.  Those  estimates  varied  from  five  to 
twenty  millions  of  dollars.  The  lowest  calculation  appeared  to  rest  on 
correct  data :  but  if  somewhat  too  low,  the  difference  might  be  readily  pro- 
vided for,  by  the  first  proceeds  of  the  cotton  crop,  and  by  the  sale  of  State 
stocks.  But  it  was  not  at  all  necessary  to  resort  to  calculations  of  the  amount 
of  our  foreign  debt.  Its  effect  on  foreign  exchanges,  and  on  a  consequent 
drain  of  specie  for  exportation,  is  the  only  point  in  which  the  banks  are  con- 
cerned, and  which  could  affect  the  question  under  consideration. 

At  the  very  time  when  the  convention  was  deliberating,  the  exchange  on 
London,  which  had  been  as  high  as  121,  had  fallen  to  114,  nominal  ;  and 
the  true  par  being  a  fraction  above  109J  nominal,  the  exchange  was  in  fact 
but  four  per  cent,  above  par  in  city  bank  paper.  But  that  paper  was  itself 
at  five  per  cent,  below  specie ;  and  the  rate  of  exchange  was,  therefore,  one 
per  cent,  below  specie  par.  In  other  words,  any  given  quantity  of  New 
York  bank  notes  could  purchase  bills  on  London,  exceeding  by  one  per  cent, 
the  corresponding  amount  in  specie  which  the  same  quantity  of  bank  notes 
could  purchase.  Ninety-nine  gold  sovereigns  cost  as  much  as  a  bill  on 
London  of  one  hundred  pounds  sterling.  Under  such  circumstances,  specie 
could  not  be  exported  without  a  loss,  and  accordingly  the  exportation  had 
altogether  ceased.  It  is  well  known  that,  within  a  week  after  the  adjourn- 
ment of  the  convention,  a  further  fall  had  reduced  the  rate  of  exchange  to 
llli  nominal ;  that  is  to  say,  to  2i  per  cent,  below  the  true  specie  par,  and 
within  less  than  2  per  cent,  of  being  at  par  with  New  York  bank  notes. 
But,  reverting  to  the  time  when  the  convention  was  sitting,  the  requisite 
alteration  was  no  longer  a  matter  of  conjecture  ;  and  the  fact,  that  the  ex- 
change had  fallen  below  the  true  specie  par,  and  that  the  exportation  of 
specie  had  ceased,  had  actually  taken  place. 

Apprehensions  were  nevertheless  expressed,  of  the  effect  which  large 
importations  of  grain  and  merchandise  might  hereafter  have  on  the  foreign 
exchanges,  and  of  an  expected  drain  of  specie  for  the  China  trade.  It 
appeared  to  us,  that  if,  after  the  principal  acknowledged  cause  of  the  sus- 
pension, and  which  presented  the  greatest  obstacle  to  the  resumption,  had 
actually  ceased  to  operate,  we  were  permitted  to  allege  conjectures  and 
contingencies,  as  a  proper  ground  for  protracting  the  suspension,  there  was 
no  time  at  which  some  plausible  reasons  of  a  similar  character  might  not  be 
adduced,  and  the  resumption  be  indefinitely  postponed. 

With  respect  to  the  danger  of  excessive  importations,  it  might  indeed  be 
apprehended  that,  whenever  the  pressure  of  the  foreign  debt  was  removed, 
the  commercial  community  might,  with  its  characteristic  energetic  spirit  of 
enterprise,  resume  its  business  too  soon,  and  on  too  large  a  scale.  And  it  is, 
on  that  account,  highly  important,  that  the  banks  should  seize  eagerly  that 
eventful  moment,  and,  as  it  may  be  called,  the  turn  of  the  tide,  for  an  imme- 
diate resumption,  before  new  undertakings  may  raise  new  obstacles  to  the 
accomplishment  of  that  object. 

The  danger  of  unfavorable  exchanges,  and  of  an  extraordinary  exportation 
of  specie,  being  now  out  of  question,  what  other  causes  could  impair  the 
ability  of  the  banks,  generally,  or  in  some  sections  of  the  country,  to  resume 
specie  payments  within  a  very  short  period  ? 


112 

The  four  great  South-Western  States  were  not  represented  in  the  con- 
vention :  and  it  will  be  admitted  that  some  of  them  may  not  be  ready  as 
early  as  the  other  parts  of  the  Union.  It  is,  on  that  point,  sufficient  to 
observe,  1st.  That,  being  largely  debtors,  their  not  resuming  immediately 
cannot  in  any  way  affect  the  stability  of  specie  payments  by  the  other 
States.  2d.  That  the  resumption  by  other  States  will  not,  in  the  slightest 
degree,  impair  the  productive  industry  of  those  districts,  whose  great  natural 
resources  will,  notwithstanding  the  peculiar  situation  of  their  banks,  early 
and  powerfully  promote  the  payment  of  debts  and  the  renewal  of  sound 
business. 

By  no  other  portion  of  the  country  was  it  intimated,  that  there  were  any 
banks  whose  particular  situation  required  a  longer  time  than  might  be 
wanted  by  those  of  New  York :  unless  this  should  have  been  implied  in 
some  allusions  to  the  respective  indebtedness  to  each  other,  of  the  several 
cities  or  districts.  In  such  cases,  justice  requires,  and  it  may  be  done  in  a 
very  short  time,  that  the  necessary  curtailments  should  be  made  in  the 
debtor  places,  and  the  resources  thus  obtained  should  be  applied  to  the  dis- 
charge of  such  debts,  and,  when  necessary,  to  the  purchase  of  specie.  This 
is,  in  fact,  the  course  pointed  out  by  the  resolution,  unanimously  adopted  by 
the  convention  :  "  That  this  convention  strongly  recommends  to  all  the 
banks  of  the  United  States,  to  continue,  by  proper  measures,  to  prepare  them- 
selves to  return  to  specie  payments,  within  the  shortest  practicable  period 
after  the  next  meeting  of  the  convention." 

We  have  every  reason  to  believe,  that  the  banks  represented  in  the  con- 
vention were  in  a  sound  state  ;  and,  in  every  respect,  as  well  prepared  and 
able  to  resume  specie  payments  as  those  of  the  city  of  New  York.  It 
would  indeed  be  strange  that  it  should  be  otherwise.  New  York  suffered 
incomparably  more  than  any  other  city  ;  the  failures  were  far  more  nume- 
rous ;  its  banks  were  subject  more  than  any  others  to  the  causes  which  pro- 
duced the  suspension,  and  alone  to  a  run  of  domestic  origin,  alone  drained  of 
the  greater  part  of  their  specie,  whilst  banks  in  other  places  preserved  the 
greater  part  of  theirs. 

The  only  reason  which  remains  to  be  examined,  is  the  apprehension  that 
confidence  may  not  have  been  sufficiently  restored  to  ensure  a  permanent 
resumption.  The  causes  which  occasioned  the  distrust,  the  panic,  and  the 
run  on  some  of  the  banks,  have  ceased  to  operate.  Such  coincidence  of 
extraordinary  events  and  unfortunate  incidents,  as  produced  the  catastrophe, 
must  be  rare,  and  may  never  again  occur.  It  must  be  conceded,  that  it  is 
impossible  that  confidence  should  be  restored,  until  the  banks  shall  have  re- 
sumed specie  payments,  or  designated  an  early  day  for  that  purpose. 
Combined  with  the  conviction  of  the  ability  of  the  banks  to  resume,  and 
•with  the  fact  that  their  paper  shall  have  become  equal,  or  nearly  equal,  in 
value  to  specie,  nothing  is  wanted  for  restoring  entire  confidence,  but  the 
simultaneous  resumption  by  the  principal  banks,  acting  in  concert. 

Although  the  convention  could  not  be  prevailed  upon,  either  to>fix  at  this 
time  a  day  on  which  to  resume,  or  to  meet  again  on  an  earlier  day  than  the 
llth  of  April ;  although  it  is  peculiarly  to  be  regretted  that,  from  incidental 
considerations,  it  should  not  have  yielded  to  our  request  to  meet  in  the  first 
days  of  March  ;  yet  the  conference  has  been  attended  with  considerable 
advantages.  There  has  been  a  free  and  mutual  interchange-  of  opinions. 
The  serious  attention  of  all  the  banks  has  been  drawn  to  the  absolute  neces- 
sity of  an  early  resumption;  and  the  suggestion  of  a  postponement  for  an 
indefinite  time,  if  ever  seriously  entertained,  has  been  abandoned.  We  may 
now  rely  with  confidence  on  a  great  unanimity  from  the  Eastern,  Southern, 
and  North-Western  sections  of  the  Union,  in  fixing,  at  our  next  meeting,  the 
earliest  practicable  day  for  the  resumption  of  specie  payments.  It  is  true 
that  the  banks  of  Philadelphia  and  Baltimore  appeared  to  contemplate  a 


113 

more  remote  time  than  we  did,  not  certainly  because  of  being  less  able  or 
prepared  than  ourselves,  or  others,  but  on  general  grounds.  It  now  appears, 
from  official  returns,  that  the  banks  of  Pennsylvania  are,  in  every  respect, 
better  prepared  than  those  of  the  city  of  New  York.  And  it  has  been 
announced  by  the  highest  authority  in  that  State,  that  "  the  banks  of  Penn- 
sylvania are  in  a  much  sounder  state  than  before  the  suspension  ;  and  that 
the  resumption  of  specie  payments,  so  far  as  it  depends  on  their  situation  and 
resources,  may  take  place  at  any  time."  The  great  fall  at  this  early  day  in 
the  rate  of  foreign  exchanges,  which  has  exceeded  our  most  sanguine  ex- 
pectations, had  not  been  anticipated  by  them.  A  fact  so  important,  and 
which  gives  a  new  aspect  to  the  whole  subject,  cannot  fail  to  have  a  power- 
ful influence  on  their  decision.  We  entertain  sanguine  hopes,  that  this  and 
the  course  of  events  will  remove  their  objections,  and  induce  them  to  unite 
and  act  in  concert  with  us.  We  are  under  the  firm  conviction,  that  the 
result  depends  on  their  determination,  and  that,  if  they  agree  to  it,  the  re- 
sumption may  with  facility  be  effected  at  an  early  day.  Should  they 
persevere  in  the  opinion,  that  an  early  resumption  is  inexpedient  and  dan- 
gerous, it  may,  considering  the  magnitude  of  their  capital,  prove  difficult  for 
the  other  banks,  and  particularly  for  those  of  this  city,  with  their  resources 
alone,  to  maintain  permanently  specie  payments. 

In  the  meanwhile,  the  line  of  our  duty  is  obvious  :  and  we  have  only  to 
continue,  by  every  measure  in  our  power,  to  strengthen  ourselves,  and  to  be 
prepared,  at  the  earliest  possible  day,  to  fulfil  our  engagements,  and  to 
resume  and  maintain  specie  payments.  To  the  early  completion  of  the 
measures  now  in  train  for  that  purpose,  we  respectfully,  but  most  earnestly 
call  the  immediate  attention  of  the  city  banks,  as  an  indispensable  requisite 
before  a  day  can  be  fixed  for  resumption.  The  country  banks,  with  most 
laudable  exertions,  have  taken  all  the  necessary  steps,  and  are  prepared  to 
resume  at  any  time. 

ALBERT  GALLATIN, 
GEO.  NEWEOLD, 
C.  W.  LAWRENCE, 
CORNS.  HEYER, 
JOHN  J.PALME  R, 
PRESERVED  FISH. 
G.  A.  WORTH. 
December  15,  1837. 


At  a  meeting  of  the  officers  of  the  banks  of  the  city  of  New  York,  held  on 
the  28th  of  February,  1838,  the  committee  on  the  "  resumption  of  specie 
payments"  submitted  the  following  Report  in  part,  viz. : 

In  contemplation  qf  the  resumption  of  specie  payments,  by  the  banks  of 
the  city  of  New  York,  on  or  before  the  tenth  day  of  May  next,  and  under  the 
uncertain  condition  of  a  simultaneous  or  early  resumption  by  the  banks  of 
some  of  the  other  great  commercial  cities,  it  is  incumbent  on  those  of  New 
York  to  adopt  all  the  measures,  within  the  limits  of  their  resources,  which 
may  enable  them  not  only  to  resume,  but  also  to  maintain,  specie  pay- 
ments. 

Much  has  already  been  done  in  that  respect,  the  result  as  well  of  causes 
not  under  the  control  of  the  banks,  as  of  positive  action  on  their  part. 

1.  It  appears  by  the  annual  returns  of  the  Bank  Commissioners  that,  ex- 
clusively of  the  Dry  Dock  Bank,  which  is  not  included  in  the  return  of  this  year, 
the  gross  amount  of  all  the  liabilities  of  the  city  banks,  payable  on  demand, 
15 


114 

deducting  therefrom  the  notes  and  checks  of  other  banks  held  by  them,  and 
the  balances  due  to  them  by  other  banks,  amounted, 

On  the  1st  of  January,  1836,  to $26,918,105 

1837,  to 25,485,287 

"  "  1838,  to 12,920,694 

making  a  diminution  in  the  liabilities  of  more  than  twelve  millions  and  a  half 
during  the  year  1837. 

2.  The  detailed  statement  for  the  1st  of  January,  1838,  rendered  by  the 
several  city  banks  to  their  standing  committee,  shows  a  balance  to  their  credit 
of  more  than  four  millions,  due  to  them  by  banks  out  of  the  State,  and  of 
more  than  two  millions  in  account  with  all  the  banks  out  of  the  city.  Ample 
means,  as  also  appears  by  those  statements,  have  been  provided  by  the 
country  banks  of  the  State,  for  the  redemption  of  their  notes  which  circulate 
in  the  city. 

On  a  view  of  the  whole  subject,  we  may  confidently  say,  that  the  relative 
strength  of  the  banks  is,  and  at  the  time  of  the  resumption  will  be,  greater 
than  it  was  during  the  last  two  years,  and  probably  at  any  former  time. 

The  fall  in  the  rate  of  foreign  exchanges,  now  considerably  below  par  in 
our  city  paper,  renders  it  absolutely  certain  that  no  exportation  of  specie  can 
take  place,  and  more  than  probable  that  a  considerable  influx  may  be  ex- 
pected. This  fact,  now  indisputable,  must  have  an  effect  on  public  opinion, 
and  ought  to  remove  the  apprehensions  of  those  who  may  have  believed  our 
efforts  for  an  early  resumption  premature.  Secure,  as  all  the  banks  in  the 
United  States  are,  against  foreign  demands,  we  are  justified  in  expecting 
their  co-operation.  If  this  is  obtained,  we  do  not  perceive  any  obstacle  to  an 
early,  easy  and  safe  resumption  of  specie  payments. 

A  continued  suspension,  on  the  part  of  some  of  the  other  great  commercial 
cities,  can  alone  render  the  resumption  on  our  part  difficult,  and  may  prevent 
a  free  application  of  the  legitimate  banking  resources  of  New  York.  Yet 
such  is  the  favorable  relative  state  of  the  balances  between  this  and  the  other 
parts  of  the  Union,  that,  for  the  present  at  least,  but  little  need  be  apprehend- 
ed from  the  effect  of  natural  causes.  Of  deliberate  acts  of  hostility,  as  there 
could  be  no  motive  for  such,  there  should  be  no  apprehension  on  our  part. 
We  trust  that,  supported  by  the  community  of  the  city  and  by  this  State,  the 
banks  will  be  able  to  surmount  all  obstacles,  and,  on  or  before  the  tenth  of 
May,  to  resume  and  maintain  specie  payments. 

The  preparatory  measures  on  their  part  appear  to  be,  1st,  a  reduction  of 
their  liabilities  out  of  the  State,  and  drawing  in  their  foreign  funds  ;  2d,  an 
equalization  of  the  balances  due  to  and  from  each  other,  and  a  mutual  re- 
turn of  their  notes,  which  may  enable  all  to  resume  on  an  equal  footing  and 
with  equal  safety  ;  3d,  a  sufficient  increase  of  their  specie.  On  these  points 
the  committee  will  submit  a  separate  report. 

Signed,  ALBERT  GALLATIN, 

PETER  STAGG, 
GEO.  NEWBOLD, 
CORNS.  HEYER, 
JOHN  J.  PALMER, 
C.  W.  LAWRENCE, 
F.  W.  EDMONDS. 

Whereupon,  the  report  was  unanimously  adopted  by  the  meeting. 
On  motion,  Resolved,  That  the  same  be  published. 

Signed,          BENJ.  M.  BROWN,  Chairman. 
W.  M.  VERMILYE,  Secretary. 


115 

Extract  from  the  Minutes  of  the  Proceedings  of  the  adjourned  meeting  of  the 
Bank  Convention,  held  at  New  York,  on  the  llth  to  the  16th  April,  1838. 

Present — Delegates  of  banks  from  the  following  States,  viz. :  Maine,  Ver- 
mont, New  Hampshire,*  Massachusetts,  Rhode  Island,  Connecticut,  New 
York,  New  Jersey,  Delaware,  Maryland,*  District  of  Columbia,  Virginia, 
North  Carolina,  Indiana,  Illinois,  Missouri,  Mississippi,  and  from  Pittsburgh, 
(Pennsylvania.)t 

The  following  letter,  among  others,  was  placed  upon  the  minutes  of  the 
Convention: 

Philadelphia,  April  4th,  1838. 

Sir, — At  a  meeting,  held  this  day,  of  committees  from  all  the  banks  of  the 
city  and  liberties  of  Philadelphia,  a  notice  was  received  from  you  of  the  ad- 
journed meeting  of  the  Convention  of  Banks,  to  be  held  at  New  York  on  the 
llth  of  this  month.  The  banks  of  Philadelphia  having  declined  to  send  del- 
egates to  that  adjourned  meeting,  I  have  been  instructed  to  apprise  you  of 
their  determination,  and,  as  a  just  mark  of  respect  to  the  Convention,  as  well 
as  to  yourself  personally,  to  state  the  reasons  of  their  absence.  This  duty  I 
hasten  to  perform. 

On  the  19th  of  August  1837,  an  invitation  was  given  to  the  banks  of  Phila- 
delphia, in  behalf  of  the  banks  of  the  city  of  New  York,  to  meet  in  conven- 
tion at  the  city  of  New  York,  "  for  the  purpose  of  agreeing  on  the  time  when 
specie  payments  should  be  resumed,  and  on  the  measures  to  effect  that  pur- 
pose." The  reason  assigned  for  the  invitation  was,  that  "  it  would  be  im- 
practicable for  those  of  any  particular  section  to  resume,  without  a  genera] 
explanation  of  at  least  the  principal  banks  of  the  great  ports  of  the  country  ; 
a  mutual  and  free  communication  of  their  respective  situations,  prospects,  and 
opinions,  seem  to  be  a  necessary  preliminary  step."  To  this  the  banks  oi 
Philadelphia  answered  on  the  29th  of  August,  stating  their  belief  that  "  the 
general  resumption  of  specie  payments  depends  mainly,  if  not  exclusively, 
on  the  action  of  Congress,  the  body  charged  with  the  general  power  ovei 
commerce,  and  the  exclusive  power  over  the  coinage ;  and,  without  whose 
co-operation,  all  attempts  at  a  general  svstem  of  payments  in  coin,  through- 
out this  extensive  country,  must  be  partial  and  temporary ;"  and  they  con- 
cluded with  a  declaration,  "  that  it  is  inexpedient  at  this  time  to  appoint  dele- 
gates to  the  proposed  Convention." 

At  a  subsequent  period,  on  the  21st  of  October  1837,  a  second  invitation 
was  received  from-the  banks  of  the  city  of  New  York,  for  a  similar  meeting 
on  the  27th  of  November.  Although  entertaining  precisely  the  same  opin- 
ions as  to  the  inexpediency  of  any  resumption,  without  previously  under- 
standing the  intentions  of  the  Government,  the  banks  of  Philadelphia  are  yel 
unwilling  to  do  any  thing  which  might  seem  to  be  discourteous  to  the  banks 
of  the  city  of  New  York,  and  accordingly  sent  delegates  to  the  Convention. 
After  remaining  in  session  for  a  week,  that  body  was  unable  to  name  any  da^i 
for  the  resumption  ;  but  adjourned  to  meet  again  the  llth  of  April,  "for  the 
purpose  of  considering,  and  if  practicable,  determining  upon  the  day  when 
specie  payments  may  be  resumed;"  at  the  same  time  resolving,  "that  the 
banks  in  those  States  not  now  represented,  be  earnestly  requested  to  send  del- 
egates to  the  adjourned  meeting  of  this  Convention  ;  and  that  the  several  del- 
egates from  all  tiie  States  be  desired  to  procure  all  such  information  in  regard 
to  the  condition  of  the  banks  in  their  respective  States,  as  may  be  attainable." 

On  the  26th  of  January,  a  delegation  from  the  banks  of  the  city  of  New- 


*  The  delegates  from  Maryland  and  New  Hampshire  withdrew, 
t  And  those  from  Pittsburgh  declined  voting  on  the  final  question. 


116 

York  visited  Philadelphia,  and  while  there  addressed  a  letter  to  the  Phila- 
delphia banks,  stating  that  they  were  desirous  of  ascertaining  "if  the  Philadel- 
phia hanks  will  agree  with  them  to  name  a  day,  not  later  than  the  period 
mentioned,  (May,)  when  they  will  simultaneously  adopt  the  same  measure." 

To  this  the  Philadelphia  banks  answered,  on  the  31st  of  January,  stating, 
that  "  It  is  undoubtedly  true,  that  any  resumption,  to  be  easy,  must  be  simul- 
taneous ;  and,  to  be  effectual,  must  be  general.  Nor  is  it  less  true,  that  a 
partial  resumption,  by  any  party  to  the  Convention,  must  derange  the  rela- 
tions of  the  whole  to  each  other,  and  disturb  the  preparations  which  all  are 
making  to  produce  an  uniform  result  at  the  period  fixed  by  the  Convention. 
The  banks  of  Philadelphia,  therefore,  consider  it  scarcely  just  or  respectful  to 
the  banks  of  other  States,  whose  co-operation  was  in  the  first  instance  in- 
vited, to  take  any  steps  in  opposition  to  what  was  settled  by  the  Convention, 
without  full  concert  with  the  other  members  of  that  body,  who  separated  un- 
der conviction  that  no  action  would  take  place  on  a  matter  so  important  to 
their  interests,  until  they  were  re-assembled ;"  and  added,  "  on  a  careful 
consideration  of  all  these  circumstances,  the  banks  of  Philadelphia  think  it 
premature  to  name  any  day  for  the  resumption  of  specie  payments  until  the 
adjourned  meeting  of  the  Convention." 

Soon  after  the  return  of  that  delegation,  the  hanks  of  the  city  of  New  York 
published,  on  the  28th  of  February,  a  declaration,  that,  "  in  contemplation  of 
the  resumption  of  specie  payments  by  the  banks  of  the  city  of  New  York,  on 
or  before  the  tenth  of  May  next,  and  under  the  uncertain  contingency  of  a 
simultaneous  or  early  resumption  by  the  banks  of  some  of  the  other  great 
commercial  cities,  it  is  incumbent  on  those  of  New  York  to  adopt  all  the 
measures,  within  the  limits  of  their  resources,  which  may  enable  them  not 
only  to  resume,  but  also  to  maintain,  specie  payments."  And  immediately 
a  general  meeting  of  the  citizens  of  New  York  adopted  the  following  resolu- 
tion :  "  That  this  meeting  hails  with  great  satisfaction,  the  declarations,  on 
the  part  of  the  New  York  city  hanks,  of  their  purpose  to  resume  specie  pay- 
ments on  or  before  the  ]0th  of  May  next." 

From  this  review  it  is  manifest,  that  the  convention  contemplated  was  one 
embracing  delegates  from  every  part  of  the  Union  ;  meeting  in  good  faith  to 
confer  on  subjects  of  equal  interest  to  them  all ;  exchanging  opinions  frankly  ; 
giving  information  as  to  the  conditions  of  the  respective  sections  they  repre- 
sented, so  as  to  fix  some  scheme  of  action  which  might  unite  all  interests, 
and  combine  all  efforts.  That  was  the  design  of  the  original  meeting  of  the 
convention — that  ought  to  be  the  object  of  the  adjourned  meeting,  It  was, 
therefore,  seen  with  equal  surprise,  and  regret,  that  the  banks  of  New  York 
announced  their  determination  to  resume  on  a  day  named.  This  was  done 
without  waiting  for  the  meeting  of  the  delegates,  which  they  had  themselves 
invited  to  New  York.  It  was  done  in  obvious  opposition  to  the  spirit  of  con- 
sultation and  inquiry,  which  were  presumed  to  be  the  whole  purpose  of  the 
convention.  It  was  done  in  disregard  of  the  friendly  but  decided  opinion  of 
the  Philadelphia  banks,  that  it  would  be  neither  just  nor  courteous  to  act  until 
the  convention  were  re-assembled.  Of  the  propriety  of  this  determination 
by  the  banks  of  the  city  of  New  York,  the  banks  of  Philadelphia  do  riot  pre- 
sume to  offer  an  opinion.  But  it  is  manifest,  that  this  decision  gives  an  en- 
tirely new  character  to  the  convention.  The  party  who  convoke  the  assem- 
bly to  confer  with  the  other  banks  on  the  several  interests  of  all,  has,  without 
waiting  for  their  arrival,  decided  the  question  exclusively  in  reference  to  his 
own  peculiar  interests.  It  meets  them  to  discuss  what  is  already  settled  ; 
and  the  only  point  which  remains  will  be,  not  whether  the  banks  of  New 
York  and  the  banks  of  all  the  other  States  should  resume  specie  payments, 
but  simply,  whether  the  banks  of  the  city  of  New  York  having  decided  to 
resume  specie  payments  on  a  day  named,  the  banks  of  the  other  States  must 
do  the  same.  In  that  question  the  banks  of  Philadelphia  desire  to  take  no 


117 

part.  They  do  not  wish  to  give  any  advice  in  regard  to  the  course  which 
the  banks  of  the  city  of  New  York  have  resolved  to  pursue;  they  do  not 
wish  to  receive  any  from  those  banks  touching  their  own  cours3.  Accord- 
ingly, they  deem  it  better  to  abstain  altogether  from  a  meeting  in  which  their 
delegates  can  no  longer  find  an  appropriate  place. 

I  need  scarcely  add,  that  this  determination  implies  not  the  slightest  want 
of  respect  to  the  convention,  or  to  its  highly  respectable  presiding  officer,  but 
is  founded  exclusively  on  consideration  of  duty  to  themselves,  and  to  the 
general  interests  of  the  country. 

I  have  the  honor  to  be,  very  respectfully, 

Signed,  W.  MEREDITH,  Chairman. 

SAMUEL  HUBBARD,  ESQ. 

President  of  the  Convention. 

Attest,    J.  B.  TREVOR,  Secretary. 

At  a  meeting  of  the  association  of  the  delegates  of  the  banks  of  the  city  of 
Philadelphia  and  districts,  held  on  the  4th  day  of  April  1838,  the  following 
resolutions  were  adopted: 

Resolved,  That  it  is  inexpedient  to  send  delegates  to  the  adjourned  meet- 
ing at  New  York,  of  the  bank  convention,  on  the  llth  of  this  month. 

Resolved,  That  the  following  letter  be  transmitted  by  the  chairman  of  this 
meeting  to  the  president  of  that  convention,  to  explain  the  reasons  of  the  ab- 
sence of  the  delegates  from  Philadelphia. 

Extract  from  the  Minutes  : 

J.  B.  TREVOR,  Secretary. 

On  motion  of  Mr.  Brockenbrough  of  Virginia,  it  was 

Resolved,  That  the  correspondence  furnished  to  the  convention,  by  Mr. 
Newbold  of  New  York,  with  the  Secretary  of  the  Treasury,  be  placed  upon 
the  minutes  of  the  proceedings  of  this  convention. 

(COPT.) 
[PRIVATE.]  Bank  of  America,  April  7,  1838. 

Dear  Sir, — So  much  is  said  in  the  public  press,  and  daily  repeated  else- 
where, of  the  hostile  disposition  of  the  Government  towards  the  Banks,  and 
of  the  measures  in  contemplation  by  the  Treasury  Department,  calculated,  it 
is  said,  to  injure  and  embarrass  the  Banks,  and  to  retard,  if  not  prevent,  their 
resumption  of  specie  payments,  that  I  am  induced  to  address  you  on  the 
subject.  Not,  however,  that  any  thing  is  necessary  to  satisfy  me  that  those 
assertions  and  assumptions  are  wholly  unfounded  ;  but  that  you  may,  if  you 
shall  deem  it  expedient  and  proper,  take  measures  to  correct  the  misrepre- 
sentations and  remove  the  fears  and  apprehensions  that  they  may  have  ex- 
cited in  the  community,  and  especially  in  the  minds  of  many  honest  and 
honorable  men. 

It  is  loudly  and  confidently  asserted,  and  widely  and  industriously  circu- 
lated, that  the  measures  that  will  be  pursued  by  the  Treasury  in  the 
collection  and  disbursement  of  the  public  money,  will  render  it  difficult  for 
the  Banks  to  resume  and  maintain  specie  payments.  Fears  and  apprehen- 
sions are  thus  excited,  confidence  impaired,  and  the  best  efforts  of  the  banks 
are  in  some  degree  paralyzed.  Designing  men  avail  of  this  state  of  things 
to  promote  and  affect  their  special  purposes,  and  industry  and  talent  are  not 
wanting  to  make  their  efforts  essentially  mischievous.  Permit  me,  therefore, 
to  ask  whether  there  is  no  way  by  which  the  mischief  may  be  abated  and 
successfully  counteracted.  Of  this  you  will  best  judge  and  determine  your- 
self. My  present  object  is  more  immediately  in  reference  to  the  approaching 
convention  of  Bank  Delegates  to  be  held  in  this  city,  on  the  llth  inst. ;  and 
being  satisfied  that  efforts  will  there  be  made  to  impress  the  belief,  that  the 
fears  and  apprehensions  alluded  to  are  well  founded,  and  that  it  would 


118 

therefore  be  unsafe  and  inexpedient  for  the  Banks  to  fix  a  day  for  the  re- 
sumption of  specie  payments.  I  consider  it  to  be  of  the  utmost  importance 
that  such  efforts  should  be  effectively  met,  and  that  all  unfounded  suspicions 
and  suggestions  should  be  removed  or  successfully  confronted.  I  beg,  there- 
fore, respectfully  to  suggest  for  your  consideration,  whether  you  will  not  be 
pleased  to  enable  and  authorise  me  to  communicate  to  the  convention,  if  it 
shall  be  necessary,  your  views  and  wishes  on  the  subject  of  the  resumption 
of  specie  payments,  and  the  course,  or  probable  course,  of  the  Treasury  in 
reference  to  the  Banks,  after  they  shall  have  resumed.  It  is  an  important 
crisis  for  this  city  and  this  State — indeed  for  the  whole  Union;  and  being 
anxious  to  do  every  thing  in  my  power  to  promote  and  accomplish  the  right 
result — a  general  resumption  of  specie  payments — I  am  sure  that  you  will 
excuse  me  for  these  suggestions,  be  your  conclusions  respecting  them  what 
they  may. 

I  am,  with  great  respect,  dear  sir,  your  obedient  servant. 

Signed,         GEORGE  NEWBOLD. 
HON.  LEVI  WOODBURY,  Secretary  Treasury  U.  S. 

Washington. 

Treasury  Department,  9th  April,  1838. 

Sir, — I  have  to  acknowledge  the  receipt  of  your  letter  of  the  7th  inst.  In 
order  that  you  may  fully  understand  the  views  and  wishes  entertained  by 
this  department,  on  the  subject  of  a  resumption  of  specie  payments  by  the 
Banks,  and  the  course  to  be  pursued  by  the  Treasury  towards  them,  I  here- 
with enclose  copies  of  two  private  letters  written  some  weeks  since  in  answer 
to  inquiries  similar  to  yours. 

It  is  only  necessary  to  add,  that  the  same  views  are  still  cherished,  and 
that  the  notes  of  specie- paying  banks  at  par  where  offered,  are  now  received 
for  duties,  and  will  undoubtedly  continue  to  be.  They  are  and  will  be  paid 
out  when  acceptable  to  the  public  creditors,  and  no  accumulation  of  them 
beyond  our  current  expenditures  is  anticipated  at  any  point  whatever  during 
the  present  or  ensuing  year. 

I  am,  sir,  very  respectfully,  your  obedient  servant, 

Signed,        LEVI  WOODBURY. 

GEORGE  NEWBOLD,  ESQ.,  President  of  the  Bank  of  America. 

Washington,  18th  March,  1838. 

Dear  Sir, — In  reply  to  yours  of  the  14th  inst.,  I  hasten  to  remark,  that  the 
Treasury  Department  has  long  been  anxious  as  yourself  and  many  others, 
for  the  resumption  of  specie  payments  by  the  banks.  All  has  been  and  will 
be  done  by  it,  which  comes  within  its  limited  powers,  to  promote,  at  the  ear- 
liest day  possible,  so  desirable  an  event. 

I  do  not  hesitate  to  say  fully  and  frankly,  that  the  impression  is  altogether 
erroneous,  that  specie  is  to  be  purchased  and  hoarded  by  the  Government. 
Only  a  few  thousand  dollars  of  it  have  yet  been  raised  on  Treasury  Notes,  and 
none  is  intended  to  be  hereafter,  except  to  the  extent  needed  to  supply  the 
current  demands  of  the  Government.  Whatever  may  be  thus  obtained  or 
received  for  public  dues  of  any  kind,  will  be  forthwith  paid  out  again  to  de- 
fray the  appropriations  ;  and  the  settled  policy  of  the  Department  has  been, 
and  will  be,  to  keep  nothing  idle  in  the  Treasury,  while  the  power  exists  to 
issue  Treasury  Notes  to  meet  contingencies  and  deficiencies,  as  they  may 
hereafter  occur.  Respectfully  yours, 

Signed,        LEVI  WOODBURY. 

NATHAN  APPLETON,  ESQ. 

Boston,  Mass. 


119 

Washington,  March  18,  1838. 

Dear  Sir, — In  reply  to  yours  of  the  16th  inst.,  I  hasten  to  remove  any  er- 
roneous inferences  from  the  rumor  mentioned. 

The  settled  policy  of  the  Department,  and  one  which  it  makes  known  to 
all  inquirers,  is  to  promote  the  resumption  of  specie  payments  by  the  banks, 
so  far  as  its  limited  powers  may  permit. 

Consequently  it  has  not,  and  will  not  hereafter,  purchase  specie,  beyond 
what  may  be  needed  for  immediate  disbursements ;  and  in  that  way  will 
neither  hoard  it  nor  compete  with  others  for  its  possession. 

All  we  receive  in  any  way  will  immediately  be  paid  out  again  to  defray 
appropriations. 

I  make  these  statements  explicitly  and  promptly,  and  have  forwarded  simi- 
lar ones  to  Boston,  in  order  that  no  injurious  apprehensions  need  be  enter- 
tained as  to  the  financial  operations  of  the  Government. 

Respectfully  yours, 

LEVI  WOODBURY. 
J.  D.  BEERS,  ESQ. 

New  York  City. 

•*  Friday,  April  13^,  1838. 

Mr.  "Ware  of  Maine,  from  the  committee  of  one  for  each  State,  made  the 
following  report : 

That  said  committee  have  adopted  the  following  resolutions,  which  they 
recommend  to  the  convention  for  consideration  and  adoption,  viz. : 

Resolved,  That  it  be  recommended  to  all  the  banks  of  the  several  States, 
to  resume  specie  payments  on  the  first  Monday  in  October  next,  without 
precluding  an  earlier  resumption  on  the  part  of  such  banks  as  may  find  it 
necessary  or  deem  it  proper. 

Resolved^  That  it  is  important  to  the  success  of  the  effort  to  return  to  specie 
payments,  and  to  restore  the  currency  to  a  sound  condition,  that  the  banks 
should  be  sustained  by  the  General  Government. 

Monday,  April  16th,  1838. 

The  Convention  proceeded  to  the  consideration  of  the  Report  and  Resolu- 
tions, when  Mr.  Brockenbrough,  of  Virginia,  moved  to  amend  the  same, 
by  striking  out  all  after  the  word  "  Report,"  and  insert  in  lieu  thereof  the 
following : 

Whereas,  it  is  found  necessary,  in  order  to  simultaneous  action  by  the 
banks,  in  the  resumption  of  specie  payments,  so  to  proceed  in  designating  a 
period  for  that  purpose  as  to  secure  the  nearest  approach  to  unanimity  ;  and 
whereas,  whilst,  in  the  judgment  of  this  Convention,  the  return  to  specie  pay- 
ments, and  preservation  of  the  currency  in  a  sound  condition,  will  depend 
essentially  on  the  course  of  the  General  Government,  yet  this  Convention  re- 
gards it  as  the  duty  of  the  banks  to  make  the  effort  in  good  faith,  exclusive  of 
any  direct  reference  to  the  prospective  measures  of  the  Government.  At 
the  same  time,  the  Convention  has  been  happy  to  observe,  in  recent  letters  of 
the  Secretary  of  the  Treasury,  specific  assurances  of  an  intention  to  sustain 
the  banks,  so  far  as  it  may  be  done  through  the  fiscal  operations  of  that  de- 
partment of  the  Government.* 

Resolved,  That  it  be  recommended  to  all  the  banks  of  the  several  States  to 
resume  specie  payments  on  the  first  day  of  January  next,  without  precluding 


*  The  allusions  to  the  course  of  tho  General  Government  referred  principally  to 
the  threatened  Sub-Treasury  plan,  which  was  considered  as  hostile  to  the  banks 
which  intended  to  resume  specie  payments. 


120 

an  earlier  resumption  on  the  part  of  such  banks  as  may  find  it  necessary  or 
deem  it  proper. 
Which  Preamble  and  Resolution  were  adopted  by  the  Convention. 

[The  banks  of  New  York,  finding  that  a  majority  of  the  Convention  was  against 
a  general  resumption  so  early  as  May,  had  only  requested  that,  at  least,  the  day  re- 
commended should  be  the  1st  of  July.  This  was  refused  ;  they  resumed  alone  on 
the  10th  of  May ;  and,  although  the  Convention  had  thought  it  unsafe  to  recom- 
mend an  earlier  day  than  the  1st  of  January,  1839,  public  opinion  compelled  almost 
all  the  banks  to  resume  in  July.] 


Letters  written  in  1830,  relating  to  Mr.  Gallatiri's  subsequent  Pamphlet  on 
Currency,  published  the  same  year. 

New  York,  27th  April,  1830. 
To  ROBERT  WALSH,  Jr.,  Philadelphia: 

Dear  Sir, — It  is  doubtful  whether  I  will  have  time  to  prepare,  in  sea- 
son, such  an  article  in  relation  to  currency  as  you  desire,  and  still  more  so, 
whether  I  can  write  any  thing  on  that  subject  worthy  of  the  public,  and  cor- 
responding with  your  views.  So  much  has  been  written  on  that  question,  that 
it  does  not  seem  to  me  that  anything  new  can  be  advanced,  in  support  of  what 
are  admitted,  by  almost  all  enlightened  and  disinterested  men,  to  be  correct 
principles.  The  only  points  at  all  dubious,  at  least  in  my  opinion,  are  those 
of  local  currencies,  or  what  is  commonly  called  "  country  notes,"  and  of  the 
simultaneous  circulation  of  gold  and  silver.  Was  it  practicable,  the  follow- 
ing outline  would  appear  to  me  preferable  to  any  other,  as  combining  safety, 
convenience  and  facilities  sufficient  to  promote  industry  and  prudent  enter- 
prise : 

1.  No  other  but  the  Bank  of  the  United  States,  nor  any  individual,  asso- 
ciations or  corporations,  to  be  permitted  to  issue  any  bank  notes,  bills  of  credit, 
or  paper,  in  the  nature  of  currency;   but  all  such  bank  or  bankers  to  be 
left,  without  restrictions  or  special  tax,  at  liberty  to  pursue,  in  other  respects, 
their  proper  occupation,  viz.  :  to  receive  deposits,  to  discount  notes,  and  to 
deal  in  bills  of  exchange  or  bullion  ;  thereby  assimilating  them  to  the  bankers 
of  London,  and  to  all  those  of  the  continent  of  Europe  ;  neither  of  whom  is- 
sue a  single  shilling  of  paper  currency. 

2.  The  Bank  of  the  United  States  to  issue  no  notes  of  a  denomination  un- 
der one  hundred  dollar  s^  (a  restriction  the  sSfme  as  that  of  the  Bank  of 
France,)  those  of  a  lower  denomination  excepted,  which  it  may  make  re- 
deemable at  whichever  of  its- offices  they  may  be  presented  for  payment. 

3.  Gold  and  silver  United  States  coins  to  circulate,  either  on  the  new  Brit- 
ish plan  of  issuing  silver  at  ten  or  fifteen  per  cent,  above  its  intrinsic  value, 
but  not  to  be  a  legal  tender  for  sums  above  ten  dollars  ;  or  simultaneously  for 
all  purposes,  but  rating  gold  at  its  true  value,  which  may  be  done  so  near 
the  true  ratio  of  gold  to  silver  (about  15'6  to  1)  as  to  obviate  every  practical 
objection. 

4.  All  foreign  coins  to  be  excluded;  copper  coins  to  remain  as  now,  but 
not  to  be  a  legal  tender  for  more  than  fifty  cents. 

You  may  perceive  that  I  am  an  ultra-bullionist,  which  it  is  right  you 
should  know.  But  I  am  perfectly  sensible,  that  Congress  will  not  attempt 
to  prohibit  the  issue  of  notes  by  State  banks  ;  that  we  have  no  other  securi- 
ty against  their  over-issues  but  State  laws,  which  some  States  will  not 
enact,  and  the  Bank  of  the  United  States;  that  our  reliance  for  a  sound  cur- 


121 

rency,  and  therefore  for  a  just  performance  of  contracts,  rests  on  that  institu- 
tion ;  and  that,  in  order  to  enable  it  to  check  and  counteract  the  evil  tendency 
of  the  local  currencies,  it  must  be  permitted  to  issue  notes  of  a  smaller  deno- 
mination than  would  otherwise  be  eligible.  The  principal  object  at  this  time 
is  to  preserve  what  we  have,  rather  than  to  aim  at  what  cannot  be  obtained. 
But  I  know  too  well,  from  sad  experience,  how  difficult  it  is,  without  the  aid 
of  party,  to  carry  any  measure  however  useful,  which  is  opposed  from  sec- 
tional or  interested  views.  And  yet,  though  aware  of  the  unavailing  effect 
of  argument  under  such  circumstances,  I  would  be  disposed  to  contribute  my 
mite,  if  I  thought  I  could  add  any  thing  to  what  has  been  done  by  others. 
It  is  also  so  long  since  my  mind  was  made  up  on  the  subject,  that  I  have  not 
lately  collected  any  facts.  The  evidence  reported  by  the  committees  of  both 
Houses  of  Parliament,  previous  to  the  resuming  of  specie  payments  in  Great 
Britain,  is  the  last  document  of  any  importance  which  I  read  with  atten- 
tion. A  correct  statement  of  the  amount  and  nature  of  our  currency  is 
an  indispensable  preliminary  to  any  essay  on  the  subject.  The  ordinary 
returns  of  the  Bank  of  the  United  States  and  of  the  several  State  banks,  of 
the  latest  dates  that  can  be  obtained,  not  in  the  aggregate  for  each  State,  but 
showing  the  situation  of  each  bank,  would  be  sufficient,  as  I  am  familiar  with 
those  returns.  The  cashiers  of  the  several  offices  of  the  Bank  of  the  United 
States  might  with  ease  procure  most  of  them.  If  you  can  obtain  these  for 
me,  I  will  try  to  write,  with  the  understanding  that,  if  prevented  or  not  satis- 
fied myself,  I  will  put  my  notes  in  your  hands,  to  be  used  as  you  may  think 
proper.  I  have,  &c. 

ALBERT  GALLATIN. 

New  York,  22d  May,  1830. 
To  the  Hon.  G.  C.  VERPLANCK,  M.  C.,  Washington  : 

Dear  Sir,— I  have  been  much  gratified  by  the  Report  of  the  Committee 
of  Ways  and  Means  on  the  Bank  of  the  United  States,  which  I  think  to  be 
the  ablest  paper  that  has  issued  this  session,  fiom  any  committee  of  either 
house.  The  constitutional  question  is  treated  with  great  ability,  and  placed 
on  the  most  solid  ground  that  could  have  been  selected.  I  would,  indeed, 
be  inclined  to  go  farther  than  the  committee,  and  to  insist  that  the  term  "  bill 
of  credit"  in  the  constitution,  embraces  every  species  of  paper  currency,  and 
therefore  precludes  the  issuing  of  bank  notes  under  State  authority.  That 
a  purely  metallic  currency  would  be  preferable  to  one  hundred  independent 
local  paper  currencies,  is  indisputable  ;  and  considering  the  perpetual  ten- 
dency manifested  everywhere,  by  every  Government  or  public  institution,  to 
abuse  the  power  of  issuing  paper,  it  is  at  least  doubtful,  whether  it  would  not 
be  safer  to  abstain  altogether  from  issuing  that  dangerous  instrument  as  cur- 
rency. Admitting  this  to  be  impracticable,  I  cannot,  though  aware  of  the 
objections  to  a  powerful  monied  institution,  perceive  any  better  check  against 
over-issues,  or  any  other  security  for  preserving  a  proper  standard  of  value, 
than  the  Bank  of  the  United  States,  or  at  least  one  founded  on  the  same  prin- 
ciples. 

There  are,  however,  some  positions  in  the  report,  to  which,  as  now  inform- 
ed, I  cannot  yield  an  unqualified  assent. 

I  was,  at  the  time,  of  opinion,  that  specie  payments  might  have  been  re- 
stored in  1815,  without  the  establishment  of  the  bank  (a),  although  that 
institution  gave  the  best  practicable  security  against  a  recurrence  of  the  evil. 


(a)  I  might  have  added,  that,  though  not  then  in  office,  I  strongly  urged  in  the 
autumn  of  1815,  the  adoption  of  such  moasures  as  might  have  effected  the  object; 
funding  the  excess  of  Treasury  Notes  afloat,  and  receiving  no  notes  of  suspended 
banks  in  payment  of  duties  and  taxes,  or  of  public  lands. 
16 


122 

I  also  think  that  the  depreciation  of  a  paper  currency  does  not  exclusively 
depend  on,  or  always  correspond  with,  its  excess  ;  and  tbafthis  'depreciation 
does  not  occasion  that  of  a  simultaneously  circulating  metallic  currency  ;  and 
although  I  am  an  ultra-bullionist,  it  seems  to  me  that  the  loss  arising  from, 
the  suspension  of  specie  payments,  which  was  incurred  by  Government 
during  the  war,  is  overrated  in  the  report.  But  on  those  and  some  other 
points  connected  with  the  general  question  of  currency,  to  which  I  have  paid 
great  attention,  I  only  wish  to  be  enlightened;  and  the  principal  object  of 
this  letter  is  to  request  you  to  have  the  goodness  to  supply  me,  if  in  your  pow- 
er, with  such  further  documents  as  may  throw  light  on  the  subject.  I  can  at 
present  only  point  out  the  following,  to  which  you  may  add  such  other  as 
you  may  think  useful,  and  are  within  your  reach. 

1.  The  Report  itself  with  the  annexed  tables. 

2.  Mr.  Crawford's  Report  of  1820,  therein  alluded  to. 

3.  The  Report  of  the  Committee  of  the  Senate  of  this  session  on  the  Bank 
of  the  United  States. 

4.  The  Report  (dates  not  recollected,  1813  to  1817]  showing  the  amount 
respectively  subscribed  in  the  several  States,  &c.  to  the  loans  obtained  during 
the  war. 

5.  The  Report,  or  Reports,  showing  the  amount  of  Treasury  Notes  issued 
during  the  war,  their  redemption  by  funding  or  payment,  with  the  dates  of 
such  issues  and  redemption. 

6.  The  late  Report,  of  the  Secretary  of  the  Treasury  to  the  Senate  respect- 
ing the  relative  value  of  gold  and  silver. 

I  think  that  the  immediate  causes  which  produced  the  suspension  of  specie 
payments,  are  not  sufficiently  investigated  in  the  report.  Excessive  issues  of 
bank  notes,  and  perhaps  withdrawing  of  specie,  will  be  the  answer.  But 
what  was  the  cause  of  those  excessive  issues,  which  had  not  operated,  for  the 
three  j'ears  immediately  following  the  dissolution  of  the  first  Bank  of  the 
United  States?  This  is  an  important  question,  as  connected  with  the  degree 
of  security  afforded  by  the  present  Bank  against  another  suspension  in  time 
of  war,  and  with  the  extent  to  which  it  may  at  such  time  afford  or  promote 
the  loans  wanted  by  Government.  A  knowledge  of  the  precise  situation  of 
the  principal  banks  in  June  1812,  and  when  they  stopt  payment  in  specie, 
would  materially  assist  in  discovering  the  immediate  cause  of  that  event. 
J  am,  <fec. 

ALBERT  GALLATIN. 


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Approximate  Statement  of  the  Population,  nominal  Banking  Capital,  ana 
Debts  of  the  several  States,  at  the  end  of  the  year  1840. 


January  1S40. 

January.  1840. 

July  1841. 

Taxable 

Population. 

Bank  Capital. 

Interest.        Debts. 

Property. 

Maine, 

501,793 

4,671,500 

5&6         550,000  F 

N.  Hampshire, 

284,574 

2,939,508 

None 

72,560,000 

Vermont, 

291,948 

1,325,530 

None 

Massachusetts, 

737,699 

34,485,600 

5st-    4,290,000  F 

208,360,000 

Rhode  Island, 

108,830 

9,880,500 

None 

32,640,000 

Connecticut, 

310,015 

8,832,223 

None 

97,120,000 

New  York, 

2,428,921 

52,028,793  a 

5      21,  000,  000  d 

641,  360,000  # 

New  Jersey, 

373,306 

4,822,607 

None 

Pennsylvania, 

1,724,022 

59,286,405  b 

5      38,350,000  e 

400,000,000  g- 

Delaware, 

78,085 

1,071,318 

None 

Maryland, 
Dist.  of  Colum. 

469,232 
43,712 

10,571,630 
1,768,074 

5&6  11,490,000  F 
None 

100,000,000  g 

Virginia, 

1,239,797 

8,471,856 

o&6    6,320,000  F 

206,900,000^ 

N.  Carolina, 

753,110 

3,100,750 

None 

S.  Carolina, 

594,398 

11,584,355 

5£6    5,560,000  F 

200,000,000 

Georgia, 

689,690 

15,119,219 

Not  known 

Florida, 

54,307 

4,619,836 

Not  known 

Alabama, 

600,000* 

11,996,232 

•5**.  11,500,000 

Mississippi, 

375,651 

30,379,403  c 

5  st.   7,000,000 

Louisiana, 

351,176 

41,736,768 

5  *t.  23,730,000  F 

Arkansas, 

95,642 

1,951,888 

5&6    3,000,000  F 

Tennessee, 

829,210 

7,687,556 

6        7,150,000  F 

121,000,000  # 

Kentucky, 

785,000* 

8,939,003 

3        3,790,000 

272,000,000 

Missouri, 

381,102 

1,116,123 

5        2,500,000  F 

Illinois, 

474,404 

5,423,185 

6**.  12,210,000 

Indiana, 

683,314 

2,595,221 

5      11,  890,000  F 

97,000,000 

Ohio, 

1,510,467 

10,507,521 

6      12.940.000/ 

126,000,000 

Michigan, 

211,705 

1,229,200 

6        5,340,000'r 

Wiskonsin, 

30,752 

200.000 

None 

Iowa, 

43,068 

100,000 

None 

Total, 

17,063,830 

358,441,804 

188,610,000 

*  Partly  on  estimate.  c  Great  part  of  this  annihilated. 

a  Including  15,227,321  free  banks,  half  of  which  nominal. 

b  Including  35,000,000  U.  S.  Bank,  two-thirds  of  which  destroyed. 

d  Debt  proper,  deducting  2,054,000— Old  debt  provided  for, $  13,320,000 

Issued  to  Companies 2,845,000 

In  part  of  authorised  do.  est'd.      1,830,000 

Loan  authorised  last  session. .      3,000,000 

21,000,000 

e  Mr.  Reed  estimates  interest  on  old  5  per  cents,  at  1,762,500,  making  Principal 
35,250,000— Loan  authorised  last  session,  3,100,000— Total,  $38,350,000. 

/  May  be  increased  two  or  three  millions  for  completing  the  works  ;  but  the 
tolls  and  taxes  are  sufficient  to  pay  the  interest. 

g  In  all  these  States  the  taxable  property  is  assessed  less  than  its  value. 
F  All  the  amounts  thus  designated  are  taken  from  Mr.  Flagg's  statement. 
st.  The  debts  thus  designated  are,  in  part  or  wholly,  payable,  interest  and  princi- 
pal,  at  4s.  Gd.  st.  per  dollar,  or  at  9i  per  cent,  above  their  nominal  value.    Thus 
the  State  of  Mississippi  will  have  to  pay  in  London  .£1,575,000  sterling,  equal  to 
$7,665,000  for  the  7,000,000  which  it  has  received. 


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